Palantir Posts Impressive Growth with Expanding Profit Margins

Palantir (NYSE: PLTR) has emerged as a major player in the AI sector, boasting a remarkable 240% rise in its share price in 2024. With the integration of AI into its AIP platform, both commercial and government clients are increasingly attracted to Palantir’s offerings.

In addition to accelerating revenues, Palantir has significantly improved its operating margins this year. This success contrasts with many software companies that, despite showing growth, struggle with profitability.

During a recent call with analysts, management highlighted how Palantir is managing to achieve growth and profitability simultaneously, a strategy worth watching for investors.

Strong Operating Margin Growth

In the third quarter, Palantir’s adjusted (non-GAAP) operating margin grew again, showcasing the company’s impressive operating leverage as revenue continues to rise.

Data source: Palantir press releases. YOY= year over year.

Palantir has not only experienced substantial revenue growth but has also increased its margins. While it’s common for software-as-a-service providers to reinvest all revenue into sales and marketing—leading to minimal or negative profits—Palantir achieved a 30% revenue growth last quarter while only increasing sales and marketing expenses by 18.8%. This strategy has helped maintain and grow its adjusted operating margin.

According to management during the earnings call, this margin expansion is intentional and driven by a strategic approach shared by many successful businesses.

Image source: Getty Images.

Focus on Product Quality

Palantir’s strategy is to prioritize creating a superior product that satisfies customers. CEO Alex Karp emphasized on the earnings call the importance of fostering deep relationships with a select group of clients rather than pursuing a large number who are less engaged.

“We want a smaller number of the world’s best partners that, quite frankly, are dominating with our product… The deeper and better the product, the more we drive sales,” Karp stated.

This approach allows Palantir to embed engineers directly into client operations, solving unique problems over time. Once integration occurs, revenues typically grow.

Palantir’s net retention rate stood at 118% last quarter, indicating that existing customers increased their spending by an average of 18% compared to the previous year, with a notable four-point acceleration in that rate.

Karp also highlighted another advantage: when significant results are achieved for one customer, their employees often take that experience to new firms, leading to more business opportunities for Palantir.

Successful Brands Follow the Same Path

Noticing patterns among leading brands reveals that many minimize advertising expenditure. Companies like Apple and Tesla rely heavily on the strength of their products rather than traditional marketing, as does Microsoft with its software.

By excelling in product quality, these brands experience reduced sales and marketing costs, enabling them to maintain high profit margins and efficient capital returns.

Finding companies that manage to grow without substantial advertising costs may indicate potential long-term investments.

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Billy Duberstein and his clients have positions in Apple and Microsoft. The Motley Fool has positions in and recommends Apple, Microsoft, Palantir Technologies, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.