Palantir (PLTR) Stock Soars 30% After Record Earnings, AI Demand and Guidance Boost

Palantir had revenue of $1.94 billion in the second quarter, compared with analysts' estimates of $1.81 billion, and a 93% increase from the same period last year. Adjusted earnings were at $0.41 per share, more than double from a year ago and roughly $0.07 higher than Wall Street estimates.

The company also crossed an important milestone by generating $1 billion in GAAP net income for the first time. GAAP operating margin was 47% and adjusted operating margin was 62%. Free cash flow jumped to $1.22 billion at 63% margin, and Palantir achieved a Rule of 40 score of 155, a very strong performance for an enterprise software firm.

Commercial Business Continues to Drive Growth

The most prominent highlight of the quarter was again the U.S. commercial business. The segment's revenue increased 149% year-over-year and 28% sequentially to $764 million.

The retention of existing customers on the platform reached a record high of 157%, indicating that customers are spending far more on the platform than ever before. Total U.S. commercial contract value rose to $2.13 billion and total deal value to $6.24 billion.

Government business continued to hold up well. U.S. government revenue increased 90% to $809 million, helping total U.S. revenue rise 115% from a year ago. Now the U.S. market accounts for about 81% of Palantir's business.

In the quarter, the company inked 73 contracts totaling at least $10 million and 220 deals over $1 million, indicating its Artificial Intelligence Platform (AIP) is progressing from pilot projects to wider enterprise adoption.

At the earnings call, CEO Alex Karp elaborated on a concept he terms “AI sovereignty.” He criticized top AI model vendors, saying that many enterprise customers run the risk of relying on vendors who own the models, as well as the data.

Karp said Palantir's approach allows governments and businesses to maintain ownership of their data, AI models, and the value those systems create. He said in a shareholder letter that "the demand for sovereign AI solutions has now been unleashed" and that "customers have decided not to become vassal states of the language labs.

Meanwhile, William Blair analyst Louie DiPalma wrote that total commercial bookings have increased approximately 158% from the previous quarter, which was 47%. He insisted that it is not a measure of the decline of Palantir's position compared to rival providers including OpenAI and Anthropic, but rather a sign of growing consumer demand for the company's service.

Outlook Raised Again

Palantir was not only profitable in the quarter, it also raised its guidance bar throughout.

In the third quarter, the company projects revenue ranging from $2.160 billion to $2.164 billion, well above Wall Street's estimate of about $2.0 billion. Adjusted operating income is projected to range between $1.292 billion and $1.296 billion.

Palantir now expects revenue of $8.150 billion to $8.158 billion over the full year, which represents about 82% annual growth and is a significant upgrade from the previous guidance.

The company also forecasts commercial revenue in the U.S. to be more than $3.424 billion, marking an increase of at least 134%, and adjusted free cash flow of $4.5 billion to $4.7 billion.

The earnings rally dealt a significant blow to investors betting against the stock.

Bloomberg reported that S3 Partners' data showed that through the earnings release, short sellers had taken about $2.7 billion in paper gains. Those gains were all wiped out in Tuesday's rally, pushing the estimated paper loss to $3 billion in just one trading day.

Short interest stood at about 3.2% of outstanding shares before earnings. The result strength caused quick short-covering, and that probably fueled the stock's big rally.

Investor Michael Burry, who previously disclosed a sizable bearish position in Palantir, had argued the stock was worth below $50, although he later revealed that he had reduced part of his position.

Karp's Wealth Climbs Alongside the Stock

Palantir's stock performance also helped increase the wealth of its CEO, Alex Karp. His estimated net worth rose by some $3.1 billion to $15.3 billion, pushing him up 67 positions to become the 199th-richest person in the world in Forbes' real-time billionaire rankings.

Soon after the earnings announcement, analysts reacted swiftly. Citi upped its price estimate to $245, noting that the results had helped ease worries about the impact of increased AI competition on Palantir's growth. Mizuho raised its price estimate to $215, and Brad Zelnick at Deutsche Bank upgraded the stock to Buy, setting a price target of $200.

About 70% of the analysts who cover the stock have a Buy rating for the stock.

Source: Tipranks

From a technical perspective, the next resistance levels sit near $164.26, followed by $171.28, $176.89, and $182.51. The biggest long-term challenge continues to be the $207.52 all-time high.

On the downside, the $154 breakout area is the first key support. A break below that level could expose $147.42, $141.94, and $131.26.

Source: TradingView

The RSI is now over 82, leaving the stock well into overbought condition following Tuesday's rally. That should make the odds better of a pull back or consolidation of the uptrend, but as long as these important supports are intact, the overall uptrend should be respected.

Despite the earnings-based rally, Palantir shares are still trading at about 50 times sales for the coming year, so there's little reason for investors to feel disappointed. Investors will be closely watching the company for any signs of commercial growth in the near future to determine the sustainability of its rapid expansion.

FAQs

1. Why did Palantir (PLTR) stock jump 30%?

PLTR’s stock jumped after the company’s record breaking commercial revenue combined with a major positive earnings surprise. As a result, the company raised its revenue guidance for the year.

2. Is Palantir stock still a buy after the rally?

Although PLTR stock is up after the earnings report, the stock is trading at a high premium valuation. As a result, the stock is overbought. As a result, the execution of the company’s future earnings will be critical.

Although Palantir hasn't formally announced its commercially and operationally ready next generation products to the market, the early validation of benefits gained from its AI strategy is visible in its recent record breaking, unparalleled financial results, profitability, revenue growth, strong customer adoption of its products, and sharply increased guidance.

While customer adoption of its products, strong and sustained record breaking revenue growth, and increased profitability and customer customer retention justify a premium valuation multiple on the stock, investors will demand sustained execution and operational excellence to justify the current premium valuation.