Data analytics firm Palantir had a huge third quarter, driving the stock 20% higher on earnings beat.
Palantir Technologies (NYSE:PLTR) reported impressive results in the third quarter, which drove the stock price 20% higher in early trading on Tuesday.
The AI data analytics firm saw revenue rise 30% year-over-year in Q3 to a record $726 million, which topped estimates to $703 million.
Net income rose 100% to $143 million, or 6 cents per share, while adjusted earnings came in at 10 cents per share, which bested estimates of 9 cents.
Palantir also had a bullish outlook for the fourth quarter and full fiscal year, which also propelled the stock higher. Palantir stock has been on an absolute tear this year, rising 190% year-to-date to over $50 per share.
AI demand fuels growth
Palantir produces software for commercial and government customers that allows them to collect and analyze massive amounts of data to develop generative AI models for improved decision-making and other functions.
As such, it is very much an AI stock, as the boom in AI has accelerated its meteoric growth. That was certainly the case in Q3.
“We absolutely eviscerated this quarter, driven by unrelenting AI demand that won’t slow down. This is a U.S.-driven AI revolution that has taken full hold. The world will be divided between AI haves and have-nots. At Palantir, we plan to power the winners,” Alexander Karp, Palantir co-founder and CEO, said.
In Q3, Palantir saw the fastest growth in the U.S. portion of its business, as revenue rose 44% to $499 million. Revenue from government contracts accounted for most of that, growing 40% year-over-year and 15% quarter-over-quarter to $320 million.
“The U.S. government business is surging as our customers embrace AI,” Karp said in his letter to shareholders, with revenue coming from the defense and intelligence agencies.
The commercial business, while smaller, had even faster growth, rising 54% year-over-year and 13% quarter-over-quarter to $179 million.
“The U.S. market remains the core of our business,” Karp wrote in the shareholder letter. “It is where we have seen institutions respond most rapidly to the promise of artificial intelligence, as companies and government agencies race to implement the technical infrastructure that is necessary to unleash the power of language models across their proprietary and most valuable datasets.”
Overall, Palantir closed 104 deals of more than $1 million in the quarter, and its customer count grew 39% year-over-year and 6% quarter-over-quarter. Further, it generated $434 million in free cash and boosted its free cash flow to over $1 billion on a 12-month basis for the first time.
Palantir raises Q4 guidance
Investors were thrilled with Palantir’s outlook for Q4, as the company anticipates between $767 million and $771 million in revenue, which would be up about 6% from the third quarter numbers at the midpoint. Year-over-year that would represent growth of around 26%.
In addition, adjusted income from operations is pegged at $298 million to $302 million, up from $276 million in Q3 and $209 million in Q4 of 2023.
For the full year, Palantir raised its revenue guidance to between $2.805 to $2.809 billion, up from the previous $2.652 to $2.668 billion. U.S. commercial revenue guidance was also bumped up to $687 million, representing a growth rate of at least 50%. Meanwhile, the adjusted income from operations guidance was boosted to a range of $1.054 to $1.058 billion.
“It is the speed with which institutions in the United States, in particular, have adopted our platforms and artificial intelligence capabilities more broadly that has been, and we believe will continue to be, the driver of our growth,” Karp wrote.
Is Palantir a buy?
If you bought Palantir at the start of the year, you surely enjoyed the ride, but the question now is if earnings is enough to justify the sky-high valuation? The stock is trading at 207 times earnings and 100 times forward earnings.
The valuation is definitely something to watch, especially after today’s rally. The consensus price target among analysts is $28 per share, which would suggest a 43% decline.
Palantir stock has a lot going for it, certainly with it technology, the overall growth and demand for AI, and its success in landing large government contracts. However, investors may want to wait for a better opportunity to jump in because the valuation looks too high right now.
