The software company’s upbeat results were already priced into the stock, and growth could slow from here
Palantir’s first-quarter earnings came in solid, but the stock is still falling.
Palantir Technologies Inc.’s stock tumbled over 9% in after-hours trading Monday, despite the company’s solid first-quarter earnings and better-than-expected guidance.
“Palantir is on fire,” Chief Executive Officer Alex Karp said on the earnings call, where management read off the company’s latest numbers and discussed various increases to its guidance for the full year. Palantir’s new targets for 2025 revenue, adjusted operating income and adjusted free cash flow are higher by 4%, 10% and 13%, respectively.
But the stock market is a discounting mechanism, which means all that greatness is already priced into Palantir’s stock, veteran stock trader Mark Minervini told MarketWatch. And looking ahead, analysts tracked by FactSet expect the company’s growth rate on adjusted earnings per share to slow from 62.5% in the latest quarter to 46.1% in the June quarter and 38% in the September quarter.
For the latest quarter, Palantir’s March-quarter adjusted EPS was in line with Wall Street’s expectations for 13 cents. Meanwhile, revenue grew 39% to $884 million, above the consensus of $862 million.
Heading into the report, Palantir’s stock was already up 64.6% on the year and trading near its 52-week high. In addition, it was in a 200-day moving-average uptrend, and near overbought territory on a technical basis. With that backdrop, it makes sense that the stock is declining as investors take profits off the table.
The spike in Palantir’s stock price has made it expensive, trading at about 189 times earnings expectations for the next 12 months. That’s almost double its average multiple of about 98 since it began trading in 2020, according to data compiled from FactSet.
Meanwhile, Palantir’s price-to-earnings multiple adjusted for its expected EPS growth rate, known as a PEG ratio, is 5.5 for 2025. Readings above 1 are considered overvalued.
The stock is also very volatile, with a beta of 2.15 for the last 90 days. In this case, readings above 1 mean the stock is more volatile than the broader market.
Gil Luria, head of technology research at D.A. Davidson, believes that the stock is being carried higher by “very loyal” individual investors who are more focused on the company’s mission and less on its valuation. But Palantir’s valuation could catch up if it continues to crush earnings, causing its P/E ratio to quickly compress, Minervini said.
The problem is that revenue from government contracts currently makes up about 55% of Palantir’s sales, which poses high concentration risk, especially in the face of government cutbacks. Mark Giarelli, a Morningstar analyst, noted that while steady growth within the company’s U.S. commercial business is a good sign — allowing Palantir to diversify further away from government contracts — adoption in markets like Europe hasn’t yet taken off.
During the earnings call, an analyst asked how Palantir could be impacted by government cutbacks coming from the so-called Department of Government Efficiency, but executives fell short of offering a direct answer. Chief Technology Officer Shyam Sankar praised the DOGE efforts, while Chief Alex Karp added that Palantir “does exceptionally well when things are pen-tested. We like pressure on the system.”
Data from William Blair’s government-contract tracker shows Palantir is well positioned to win a number of defense contracts, and that the company is aligned with the current administration’s efficiency initiatives. Still, analysts there expect the stock price to remain choppy, as revenue is expected to slow in the second half of the year.