What happened

A post-earnings rally in Palantir Technologies (PLTR 3.73%) shares extended to a second day, with the stock up as much as 5.6% on Wednesday morning. The release of fourth-quarter results provided a double-digit boost to the stock, and even after a day to digest some Wall Street criticism of the numbers investors are still pouring into the shares.

So what

After markets closed on Monday, Palantir announced fourth-quarter earnings and revenue that beat expectations. The results were the first time since Palantir went public in late 2020 that it has achieved profitability according to generally accepted accounting principles (GAAP), and management sees more of the same for 2023. Palantir also is making efforts to reduce its reliance on stock-based compensation, a major complaint from bears.

Palantir makes advanced data analytics tools that help corporate and government customers organize and get the most from their data, and famously was credited with helping the Pentagon locate Osama bin Laden. The stock captured investor imagination when it first went public, but has fallen more than 75% from its initial highs as growth and profitability haven't come in as expected.

With the company seemingly making strides in proving its critics wrong, the shares are getting a boost. The stock might also be higher thanks to CEO Alex Karp's suggestion that Palantir could be a takeover target. On the post-earnings call he told investors, "I think there's going to be a lot of interest in us in buying our software and potentially in buying us," but added Palantir is focused on going it alone.

Now what

Palantir is certainly moving in the right direction, but investors should be aware the results are unlikely to do much to put the criticisms to rest. The quarterly GAAP results were aided by a one-time boost related to the sale of a joint venture in Japan, and Palantir's forecast for current-quarter and full-year revenue actually came in below analyst expectations.

The company also remains heavily reliant on its government operations. Defense contractor business tends to be stable and predictable, but also slow moving, so government contractors tend to be valued lower than higher risk but higher potential growth commercial-focused companies.

With the share price surge, Palantir now trades at more than 10 times sales. By comparison, government contracting specialist Booz Allen Hamilton is trading at 1.3 times sales.

There's a solid case to be made that Palantir, based on its unique tech, should trade at a premium to Booz Allen Hamilton. The debate among investors over the past year has been over how big of a premium Palantir deserves. Investors should be warned that the fourth-quarter results, despite the solid headline numbers, are likely to do little to settle that debate.