Palantir's relentless growth continued, catching even the company's biggest bulls by surprise.
The company's cutting-edge Artificial Intelligence Platform (AIP) is driving its ongoing winning streak.
The stock is still outrageously expensive, so it won't appeal to every investor.
After an unrelenting run that spanned more than two years and resulted in stock price gains of more than 1,000%, Palantir Technologies(NASDAQ: PLTR) is taking a well-deserved breather. The company got its start designing artificial intelligence (AI) solutions for the U.S. defense and intelligence industries before turning its gaze to enterprise. That move proved to be prescient, as the demand for generative AI helped drive accelerating sales and profit growth. Some investors have become increasingly apprehensive about its valuation, but the future remains bright.
The company released its financial report after the market closed on Monday. Not only were the results robust, but the increase in Palantir's full-year guidance illustrates the strong and ongoing demand for its AI expertise.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Let's review the results and what could lie ahead for Palantir.
Image source: Getty Images.
The AI poster child
In the first quarter, Palantir generated revenue of $884 million, up 39% year over year and 7% quarter over quarter. This resulted in adjusted earnings per share (EPS) of $0.13, which climbed 63%. To put results in the context of expectations, analysts' consensus estimates were calling for revenue of $862 million and EPS of $0.13.
The results were driven higher by U.S. commercial revenue that soared 71% year over year and 19% sequentially -- well ahead of management's guidance for growth of at least 54%. U.S. government revenue played its part, jumping 45%.
Strength in its customer metrics helped fuel the blockbuster results. Palantir's customer count grew 39% year over year, driven by a 65% increase in U.S. commercial customers. The underlying agreements that drove the results also turned heads, as Palantir closed 139 deals worth at least $1 million. Of those, 51 were worth at least $5 million, and 31 were worth at least $10 million.
Many of these contracts are laying the groundwork for the future. The company's remaining performance obligation (RPO) -- or contractually obligated sales not included in current revenue -- climbed 46% year over year to $1.9 billion. It's always a good sign when RPO is growing faster than current revenue, as this shows the company is setting the foundation for future growth.
Palantir left no doubt that AI was responsible for its robust results, as businesses are increasingly turning to its Artificial Intelligence Platform (AIP) as a means to tap into the AI revolution. Company-sponsored "boot camps" pair Palantir engineers with users to deploy AI and solve real-world, mission-critical business problems. The sessions have proven wildly successful, as evidenced by the number of seven- and eight-figure deals penned within weeks or months of attendance.
Where Palantir goes from here
Palantir boosted its full-year revenue guidance for 2025 to $3.9 billion, up from $3.75 billion just last quarter, which would represent year-over-year growth of 36% at the midpoint of its guidance. The biggest contributor to this growth spurt is the U.S. commercial segment -- which includes AIP -- as the company is now guiding for growth of at least 68%, up from management's forecast for 54% growth just last quarter.
In Palantir's letter to shareholders, CEO Alex Karp said the move to AI "has evolved into a ravenous whirlwind," and the legions of companies adopting large language models "has turned into a stampede."
While there's little question that Palantir is executing at a high level, Wall Street has sounded the alarm about the company's exceedingly high valuation. Of the 25 analysts that offered an opinion in May, only three rate it a buy or strong buy, 15 rate it a hold, and the remaining six have underperform or sell ratings. Nearly all the bearish calls cite the stock's egregious valuation as a reason to avoid Palantir.
It isn't difficult to understand why. The stock is currently selling at 398 times earnings and 65 times sales, which most investors would agree is lofty. The stock's frothy multiples have led to extreme volatility, so it won't be a good fit for every investor. If you have any doubts, consider this: Between mid-February and early April, Palantir stock plunged 41% -- on no company-specific news.
Estimates regarding the market value of AI vary wildly, but generative AI is expected to contribute between $2.6 trillion and $4.4 trillion to the global economy over the coming decade, according to global management consulting firm McKinsey & Company. If Palantir can continue to blaze the trail of AI adoption, its stock price will likely be much higher five to 10 years from now, but investors will need a strong constitution to stay the course.
Given its track record of growth, I believe Palantir shareholders should buckle themselves in for the long and bumpy ride ahead. For those looking to take the plunge, it might be best to buy on any significant decline or dollar-cost average into a position.
Should you invest $1,000 in Palantir Technologies right now?
Before you buy stock in Palantir Technologies, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Palantir Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $623,685!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $701,781!*
Now, it’s worth notingStock Advisor’s total average return is906% — a market-crushing outperformance compared to164%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
