Palantir Technologies (PLTR -0.01%) stock dropped 9.3% in after-hours trading on Monday following the artificial intelligence (AI)-powered data analytics company's release of its earnings report for the first quarter of 2025.
It's safe to assume the main reason for the stock's decline was that the quarter's earnings "only" met Wall Street's consensus estimate. Granted, earnings growth was great, but simply meeting analysts' expectations is not usually good enough to prevent a post-earnings decline for a stock with a sky-high valuation. In other words, extremely high earnings growth expectations were already priced into Palantir stock.
Going into the release, Palantir stock was trading at 238 times estimated earnings for the forward one-year period. For some context, shares of Nvidia, the leading AI chipmaker, and Broadcom, the leader in custom AI chips, were trading at 26 and 31 times forward projected earnings, respectively.
As for the report's other key metrics, Palantir's first-quarter revenue breezed by Wall Street's expectation. The company's second-quarter revenue guidance came in notably higher than analysts had expected, and it significantly raised its full-year 2025 guidance for many metrics.
Image source: Getty Images.
Palantir Technologies' key numbers
| Metric | Q1 2024 | Q1 2025 | Change* |
|---|---|---|---|
| Revenue | $634 million | $884 million | 39% |
| GAAP operating income | $81 million | $176 million | 117% |
| Adjusted operating income | $226 million | $391 million | 73% |
| GAAP net income | $106 million | $214 million | 102% |
| Adjusted net income | $197 million | $334 million | 70% |
| GAAP earnings per share (EPS) | $0.04 | $0.08 | 100% |
| Adjusted EPS | $0.08 | $0.13 | 63% |
Data source: Palantir Technologies. GAAP = generally accepted accounting principles. Calculations by author except for revenue growth, which was provided by Palantir.
Investors should focus on the adjusted numbers, which exclude one-time items.
Wall Street was looking for adjusted EPS of $0.13 on revenue of $862.1 million, so Palantir met the profit expectation and easily exceeded the revenue one. It also surpassed its guidance, which was for revenue between $858 million to $862 million. The company doesn't issue earnings guidance.
Palantir generated cash of $310 million from running its operations during the quarter, up 139% from the year-ago period. Its adjusted free cash flow was $370 million, up 149% year over year. The company ended the quarter with cash, cash equivalents, and short-term investments of $5.4 billion, up from $5.2 billion last quarter. It has no long-term debt.
What happened with Palantir in the quarter?
All percentage growth figures are year over year.
- Commercial revenue grew 33% to $397 million, accounting for 45% of total revenue.
- Government revenue increased 45% to $487 million, or 55% of total revenue.
- By region, U.S. revenue rose 55% to $628 million, accounting for 71% of total revenue. (Non-U.S. revenue accounted for the other 29% of revenue.)
- Total customer count increased 39%.
- The company closed 139 deals over $1 million, 51 deals of at least $5 million, and 31 deals of at least $10 million.
- U.S. commercial revenue jumped 71% to $255 million.
- U.S. commercial customer count surged 65%.
- U.S. commercial total contract value (TCV) deals closed soared 183% to $810 million.
- U.S. commercial remaining deal value rocketed 127% to $2.32 billion.
- U.S. government revenue grew 45% to $373 million. This market began with defense and intelligence agencies but now also includes other agencies.
Guidance for Q2 2025 and full-year 2025
Q2 guidance:
- Revenue of $934 million to $938 million. This equates to growth of about 38% year over year.
- Adjusted income from operations of $401 million to $405 million. This equates to growth of 58% to 60% year over year.
Going into the release, Wall Street had been modeling for Q2 revenue of $899 million, or 33% growth, so Palantir's guidance easily beat this expectation.
Annual guidance:
| Metric | Prior 2025 Guidance | Current 2025 Guidance |
Wall Street Estimate |
Change Implied by Guidance* YOY |
|---|---|---|---|---|
| Total revenue | $3.741 billion to $3.757 billion | $3.890 billion to $3.902 billion |
$3.75 billion |
36% (up from 31%) |
| U.S. commercial revenue | Greater than $1.079 billion | Greater than $1.178 billion | N/A | At least 68% (up from at least 54%) |
| Adjusted operating income | $1.551 billion to $1.567 billion | $1.711 billion to $1.723 billion | N/A |
52% to 53% (up from 38% to 39%) |
| Adjusted free cash flow | $1.5 billion to $1.7 billion | $1.6 billion to $1.8 billion | N/A |
28% to 44% (up from 20% to 36%) |
| GAAP operating income and GAAP net income | Both positive in each quarter | Same as prior guidance | N/A | -- |
Data source: Palantir Technologies. YOY = year over year. *Calculations by author except for total revenue and U.S. commercial revenue growth guidance, which Palantir provided.
A stellar report, but proceed carefully
In short, Palantir turned in a stellar report. Granted, the stock fell, but it's not the company's fault that many investors have unrealistic expectations for near-term earnings growth.
In Nov. 2024, I wrote that Palantir stock has what it takes to be the "next Nvidia stock" -- a massive long-term winner. I still believe Palantir stock is a buy -- but investors need to be careful given the stock's sky-high valuation of 238 times forward projected earnings.
Only folks with long investing horizons should consider buying Palantir stock. And if you do decide to buy it, it's imperative to dollar-cost-average (DCA) your way into your full position. That means investing the same dollar amount in the stock at some fixed interval, such as quarterly. This method will ensure that you don't risk buying all your shares in the stock right before a significant decline.
