Palantir Technologies: Soaring Revenues, But at What Cost?

Palantir Technologies (NASDAQ: PLTR) stock has surged impressively after the company released strong fourth-quarter results, showcasing significant revenue growth. The stock has increased an astounding 510% over the last year.

Palantir is now a prominent player in the AI software market; however, this rapid growth has led to a high stock valuation. Let’s analyze the latest results to see if it’s the right time to invest.

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Surpassing Expectations

Palantir’s revenue growth has accelerated for the sixth consecutive quarter, soaring from 13% to 36%. In the fourth quarter, the company recorded $828 million in revenue, while adjusted earnings per share (EPS) increased from $0.08 to $0.14 year over year. This performance exceeded analysts’ expectations, which predicted $776 million in revenue and an EPS of $0.11, according to LSEG.

The company’s successful “land-and-expand” strategy is yielding results, as existing clients continue to increase their spending. The net dollar retention rate stands at 120%, a 200-basis-point increase compared to the previous quarter. This figure reflects revenue growth from clients with more than one year of partnership, not including new customers acquired recently.

Breaking down the numbers, commercial revenue grew 31% year over year to $372 million, with U.S. commercial revenue jumping 64% to $214 million. The total customer count reached 383, although international revenue only saw a 3% increase to $158 million.

On the government side, revenue surged 40% year over year to $455 million, with U.S. government revenue up 45% and international government revenue increasing by 26%. Palantir credits its growth in the U.S. government sector to effective execution on existing projects and the acquisition of new contracts as government agencies embrace its AI solutions.

Looking ahead, Palantir projects full-year 2025 revenue between $3.741 billion and $3.757 billion, indicating growth of around 31% from 2024, driven largely by at least 54% growth in its U.S. commercial segment. The company anticipates adjusted operating income in the range of $1.551 billion to $1.567 billion.

Image source: Getty Images.

Is It Time to Invest?

Palantir stands as a leader in AI software, with considerable opportunities ahead as it aims to attract new customers while strengthening ties with current clients. The company’s aspiration to be the primary AI operating system for various industries shows promise, especially as its profitability increases.

Nonetheless, the major concern is Palantir’s valuation. Currently, it trades at a forward price-to-sales (P/S) ratio of 63. Although the company may exceed its 2025 revenue growth expectations of 40%, sustaining that level of growth over several years is crucial to justify its high valuation. Based on estimates of $15.4 billion in revenue by 2029 and no change in market capitalization, shares would still trade at a steep 15 times revenue.

Maintaining this growth rate in a competitive AI landscape will be challenging. Thus, investors should approach this stock cautiously and consider keeping their investment relatively small.

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*Stock Advisor returns as of February 3, 2025

Geoffrey Seiler does not hold positions in any stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. For more details, see the Motley Fool disclosure policy.

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