Palantir Stock Sets Path Towards 40% Growth

Palantir’s Q4 report was nothing short of exceptional, propelling shares past the $100 milestone on a huge beat and raise with many strong growth metrics. AIP’s release just six quarters ago has proven to be a redefining moment for the company, as it has helped drive a nearly 23 percentage point revenue acceleration in such a short period of time.

Palantir is in a league of its own – not only is it demonstrating significant growth contributions from AI offerings, but its valuation is now well beyond what’s typically viewed as ‘high’ in the software sector. As we had discussed in our October analysis, This Stock Is Crushing Salesforce, MongoDB And Snowflake In AI Revenue, Palantir is continuing to crush other leading AI favorites such as Snowflake or MongoDB when it comes to AI-driven growth.

Palantir’s Q4 Smashes Expectations

If beating its own guidance by nearly $60 million with revenue growth coming in 10 points ahead of said guidance isn’t enough proof of how strong this quarter was, there are many other metrics that display that strength.

Palantir reported $827.5 million in revenue for Q4, coming in far ahead of management’s $769 million guide and $781 million consensus estimates. This represented growth of 36% YoY, versus 26.4% guided and 28.4% expected. It also marked a 6 point sequential acceleration and a significant inflection in Palantir’s growth trajectory from the 12.7% growth reported in Q2 2023 when AIP was released.

Q1’s guide was also impressive, with Palantir guiding for $858 to $862 million in revenue, or growth of 35.6%. Analysts were only estimating $799.3 million in revenue, or 26.0% growth, for the quarter. What’s important is that this guide sets the coveted 40% growth in sights: all it would take is a $30 million beat versus guidance for Palantir to report 40% growth for Q1. This was all but written off heading into Q4’s report, with both Q4 and Q1 expected to see ~26% growth – and Palantir smashed that out of the ballpark.

Fiscal 2025’s guide was also quite strong, with Palantir guiding for nearly 31% YoY growth to $3.749 billion at midpoint, a 2 point acceleration from the 28.8% growth reported for fiscal 2024. Analyst estimates were calling for just 25.6% growth to $3.53 billion in revenue in 2025, as management cited “unrelenting demand” for driving its “impressive outperformance.”

US Commercial Growth Wows in Q4

It’s not news that AIP continues to drive strong results for Palantir’s US commercial segment – management said each quarter in 2024 that the segment is “seeing unprecedented demand with AIP driving both new customer conversions and existing customer expansions.” If anything, I would argue that Q4 was the most deserving of high praise of any quarter this year.

Here are some of the top metrics from the quarter for US commercial:

• Record TCV closed of $803 million, up 134% YoY and 170% QoQ, beating the previous record by almost $400 million
• Record net new customers of 61, beating the previous high of 41; total customer count up 73% YoY and 19% QoQ to 382
• Remaining deal value (RDV) of $1.79 billion, up 99% YoY and 47% QoQ, and accounting for roughly 33% of total RDV

Palantir’s sales cycle has raised some concerns, with management acknowledging hiccups in its execution, saying at the start of 2024 that they are still “at the way early days of figuring out how to actually get customers to buy [AIP]” and “not flawlessly executing on our sales motion.” That friction had appeared through Q3 with a deceleration in net new customers for US commercial, though Q4 all but reversed that with a surge in new customers and blazing triple-digit growth in TCV.

Management shared some TCV highlights, noting that a pharmaceutical company recently signed a $67 million TCV engagement shortly after a pilot, while a telecom firm signed a $40 million TCV expansion. Highlighting another customer success story, management said that “Panasonic Energy North America is seeing the effects of its AIP expansion as they’ve created a maintenance assistant to help 350 technicians in making 5.5 million batteries per day, resulting in reduced machine downtime, greater throughput, and rapid onboarding of new technicians.”

At the top-line, US commercial revenue rose 64% YoY and 20% QoQ to $214 million in Q4, on top of an already high 70% YoY comp from last year. For 2024, US commercial revenue rose 54% YoY to $702 million, exceeding Palantir’s guide for 50% growth.

If 54% YoY growth for the segment wasn’t already strong enough, Palantir set the bar even higher for 2025 and guided for another 54% growth to at least $1.079 billion for the segment. Compare this to 2024 – Palantir initially guided for at least 40% growth for US commercial revenue, ending the year 14 points higher. For 2025, the pressure is on to deliver to these high expectations, starting where it left off in Q4.

International commercial has been a weaker spot, with revenue rising 3% YoY in both Q4 and Q3. Management shared that while they are working to “capitalize on targeted growth opportunities in Asia, the Middle East, and beyond,” Europe is lagging, contributing 13% of revenue with just 4% growth over the past year.

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Government Leads the Way for Palantir’s Growth

While Palantir’s success in the commercial sector is quite clear by now, the government sector remains Palantir’s bread and butter. Interestingly, government outpaced commercial growth for the second quarter in a row, at 40% YoY versus 31% YoY.

In Q4, government revenue accelerated 7 points to 40% YoY to $455 million, accounting for 55% of total revenue. Within that, US government revenue increased 45% YoY to $343 million, up from 40% growth in Q3, and international government revenue rose 28% YoY and 26% QoQ to $112 million, benefiting from Palantir’s work with the NHS.

Palantir noted that customers like Anduril in the first Warp Speed cohort were already benefiting from the software in manufacturing – Anduril CIO Tom Bosco said that with the software, “we’ve seen up to 200x efficiency gain in our ability to anticipate and respond to supply shortages.”

Management also spoke confidently on FedStart, saying the offering “hit a major milestone with the approval of our FedRAMP High Environment for FedStart customers,” which is a “radical acceleration, both in reduction of time and costs of market access for software companies in the federal space.” Management added that CJADC2 (Combined Joint All Domain Command and Control) investments are continuing to deliver results while MAVEN is seeing significant adoption.

For the full year, government revenue rose 28% YoY, doubling 2023’s 14% growth rate. This was driven by 30% growth in US government revenue for the year, fueled by “continued execution in existing programs and new awards reflecting the growing demand for AI in our government software offerings.”

Palantir’s Margins, Cash Flows are Crazy

If accelerating revenue growth by more than 16 points in one year is considered impressive, Palantir’s margins and cash flows have been even better.

Adjusted operating margin has consistently expanded over the past two years, reaching 45% in Q4, up from the mid- to high-30% range over the past four quarters. For 2024, adjusted net margin was 39%, up from 28% in 2023.

If there was anything to nitpick, it would be that Q4’s adjusted operating margin could be overinflated – adjusted operating income came in at $372 million, $70 million ahead of guidance. This was due to a sharp increase in employer payroll taxes related to SBC – this rose 4x QoQ to $79.7 million.

Stripping out the SARs impact ($115 million SBC, $15 million payroll taxes) would leave employer payroll taxes at $64 million, or ~3x higher than Q3 and more than 6x higher than Q4 2023 – this is much higher than the typical trajectory for Palantir. If you normalize this to ~$20 million plus the SARs impact, adjusted operating income would instead be ~$328 million, or 40%.

For Q1 and for 2025, Palantir provided strong adjusted operating income guidance, suggesting that Q1 comes in at 41.4% and the full year at 41.6%. It is quite impressive to eye further margin expansion to the 40%+ range consistently given that Palantir is guiding for a minimum of 30% growth for the year. However, management added that expenses are expected to see a “more significant increase” in 2025 due to higher investments in technical hires and its AI product pipeline.

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Additionally, cash flow margins are ridiculously strong, with operating and adjusted free cash flow margins both above 50% for the second quarter in a row. Q4’s operating cash flow was $460 million for a 56% margin, with adjusted free cash flow of $513 million, for a 63% margin. For 2024, operating cash flow was $1.15 billion for a 40% margin, with adjusted FCF of $1.25 billion for a 44% margin (well ahead of guidance for FCF to exceed $1 billion).

For 2025, management is eyeing cash flow generation to remain strong, forecasting adjusted free cash flow between $1.5 billion and $1.7 billion, or a nearly 43% margin at midpoint. Again, to be putting up these cash flow margins while accelerating revenue growth and expanding operating margins puts Palantir in rare territory.

Palantir’s Other Strong Key Metrics

There were a handful of other key metrics that came in quite strong in Q4, and suggested that underlying business momentum remains robust heading into 2025. These include:

• 2x sequential growth in deals >$10M to 32
• Rule of 40 of 81% (revenue growth + adjusted operating margin), increasing from 68% last quarter and 54% last year
• Net retention rate expanding 2 points to 120%, reaching the highest level since Q1 2022 (seen below)
• RPO increased 40% YoY to $1.73 billion, although this marked a deceleration from 59% YoY growth in Q3. RPO’s growth will be important to watch –RPO growth decelerating below the revenue growth rate has foreshadowed significant revenue decelerations for Snowflake in late fiscal 2023 and early fiscal 2024.

AIP’s impact on net retention is clear – NRR bottomed the quarter following its release at 107%, and has consistently ticked higher since then, reaching 120% in Q4. Management continues to stress that NRR has “not yet fully captured the acceleration and velocity in our U.S. business over the past year,” so tracking its trajectory through 2025 will show to what degree the 150+ customers added in 2024 are expanding spend on the platform.

Palantir Executives Comment on DeepSeek

As concerns swirl over the state of the AI landscape following the recent release of DeepSeek’s R1 model at the end of January, Palantir’s management was questioned about what they believe the impacts are.

CTO Shyam Sankar explained that Palantir has said for two years that “models across both open and closed source are becoming more similar and performance will converge, all while the cost per token for inference continues to drop substantially,” DeepSeek’s R1 has taken that from “a contrarian position to consensus. It’s now blindingly obvious to everyone,” adding that “AIP was built for this reality.”

Sankar added that models are “commoditizing” as the “price of inference is dropping like a rock. But I think the real lesson, the more profound one is that we are at war with China. We are in an AI arms race.”

This is something I agree with, as I shared my thoughts about AI spending on Fox Business News with Charles Payne during the market’s bloodbath of AI stocks on January 27. I explained that AI spending goes up in times of war, and that this “will cause the United States and Big Tech companies to spend more,” with Big Tech, startups, and other countries all battling on AI.

A Note on Palantir’s Valuation

To many investors on social media, Palantir’s valuation remains a hot topic, with it blowing past norms and reaching the upper echelons of the stratosphere for what is considered ‘typical’ for SaaS stocks. Put it this way — how often do you see a software company re-accelerate revenue from the teens to close in on 40% in six quarters organically and sustainably, while both increasing profitability and posting cash flow margins in excess of >50%?

Palantir is now trading at nearly 87x TTM revenue, making other best-of-breed cloud names such as CrowdStrike and Cloudflare look cheap at 28x and 31x TTM revenue. Down the line, Palantir is trading alongside Snowflake and Cloudflare at 170-190x forward adjusted EPS.

Analysts share similar hesitations about Palantir’s valuation as it passed $100 per share:

• Mizuho said that the “valuation cannot and should not be irrelevant, and we find it exceedingly difficult to justify PLTR’s multiple that in our view already discounts significant further acceleration and upside versus consensus expectations.”
• Jefferies cautioned that Palantir “would need to accelerate growth to 50% for four years and trade at 18-times 2028 revenue estimates ‘just to hold its stock price’.”

Palantir is fast approaching the 2021 peaks of Snowflake and Cloudflare at 115x trailing revenue, begging the question — could Palantir extend this run and go higher to match those valuations? Anything is possible, but I would caution that these levels tend to be volatile and tend not to hold well in the long term – Snowflake is still down 60% from its 2021 peak despite revenue rising 4x.

Conclusion

Palantir has since gone on a tremendous run driven by unwavering AI-driven momentum, and a significant revenue reacceleration driving strong profitability growth. Given the outsized valuation, the I/O Fund is looking for a lower entry in Palantir while we are continuing to purchase other small and mid-cap AI beneficiaries. Advanced members will receive real-time trade alerts for any trade on PLTR and other AI stocks – take advantage of our limited-time monthly promo! Learn more here.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

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