Palantir has solidified its status as an AI leader with record-breaking financial performance. The data analytics firm saw its Q4 2025 revenue growth accelerate for the tenth consecutive quarter, reaching 70%, while its operating margin soared to an impressive 57%. Analysts at Morgan Stanley believe that, based on its 2026 growth guidance of 61%, Palantir is on track to achieve a $10 billion revenue scale, potentially at the fastest growth rate and highest profitability level ever seen in the software industry.
According to market data, Palantir's revenue surged 70% year-over-year in the final quarter of 2025, surpassing the previous quarter's 63% growth and significantly exceeding the market's consensus estimate of 62%. This robust expansion was primarily fueled by explosive performance in the U.S. market, where commercial revenue skyrocketed 137% year-over-year, and government revenue also accelerated to 66%.
For the 2026 fiscal year, Palantir has set a revenue growth target of 61%, projecting revenue to reach approximately $7.19 billion. However, Morgan Stanley analysts Sanjit K Singh and Keith Weiss noted in a report that, given the strong momentum in U.S. commercial business and an improved coverage ratio, this guidance appears "overly conservative." The firm believes that rapid adoption of the AIP (Artificial Intelligence Platform) product could drive growth beyond expectations, leading them to raise revenue and profit margin forecasts for the next two years.
Morgan Stanley maintained its "Equal-weight" rating on Palantir, keeping the price target at $205. The analysts emphasized that by combining AIP, Ontology, and AI Forward Deployed Engineers, Palantir is significantly shortening the time-to-value for customers, enabling them to deploy dozens or even hundreds of use cases quickly. This dynamic is driving larger initial deals and faster subsequent expansion.
Palantir demonstrated its fastest revenue growth since becoming a public company during the fourth quarter. Total revenue reached $1.407 billion, beating consensus estimates by approximately 5%. This marked the tenth consecutive quarter of accelerating growth. On the profitability front, strong revenue growth effectively translated into margin expansion. The adjusted operating margin reached 56.8%, an increase of 1,174 basis points from the prior year and 460 basis points above market expectations. Furthermore, free cash flow hit $791 million, representing a free cash flow margin of about 56%.
The U.S. market was the primary driver of the quarter's exceptional performance. U.S. commercial revenue reached $507 million, a 137% year-over-year increase, marking the fifth consecutive quarter of acceleration for this segment. U.S. government revenue also performed strongly, totaling $570 million, up 66% year-over-year, an improvement from the 52% growth seen in the third quarter. In contrast, international markets lagged, with growth rates for both international commercial and government business slowing down.
Despite management's full-year 2026 revenue growth guidance of 61% and an expected operating margin of approximately 56%, Morgan Stanley views these projections as containing a buffer. The analysts noted that the guidance is underpinned by an expectation of 115% growth in U.S. commercial business. However, based on the coverage ratio, the company entered 2026 with greater visibility into its performance compared to the start of 2025.
Research data indicates that Palantir began 2025 with a coverage ratio for its U.S. commercial business of around 60%. Entering 2026, this ratio had improved to 72%. As of the end of the fourth quarter, the remaining deal value for U.S. commercial business stood at $4.38 billion, a 145% year-over-year increase. Based on this, Morgan Stanley believes the U.S. commercial segment is likely to outperform the company's stated growth target, suggesting the current guidance has proven to be conservative.
Palantir's growth momentum is primarily driven by its unique AI deployment model. By combining AIP, Ontology, and AI Forward Deployed Engineers, the company enables customers to realize product value rapidly. This ability to "shorten the time-to-value" leads to larger initial deployment sizes and further spending increases from high-consumption clients.
This trend is directly reflected in customer retention metrics, with the net dollar retention rate improving to 139% in the fourth quarter, up from 134% in the third quarter. Regarding deals, Palantir closed 180 transactions valued over $1 million, 84 deals over $5 million, and 61 deals exceeding $10 million during the quarter. Total contract value reached $4.26 billion, a 138% year-over-year increase. Specifically, TCV in the U.S. market grew 67% year-over-year to $1.34 billion.
Citing strong performance and sustained growth momentum, Morgan Stanley has raised its financial forecasts for Palantir. The firm increased its revenue growth expectations for 2026 and 2027 to 61% and 45%, up from previous estimates of 50% and 45%, respectively. Concurrently, operating margin expectations for 2026 and 2027 were raised to 57.5% and 60.0%. Accordingly, free cash flow projections for the next two years were also increased to $4.1 billion and $6.2 billion.
On valuation, Morgan Stanley maintained its $205 price target. This valuation is based on a 55x multiple applied to the projected 2030 free cash flow of $15.5 billion, discounted back to 2027 using a 13% weighted average cost of capital. The analysts noted that a 55x FCF multiple equates to a growth-adjusted multiple of 1.6x, which is broadly in line with the median of 1.5x for large-cap software companies.
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