There are few stocks I'm more excited about reporting earnings than Palantir (PLTR +1.25%). It is scheduled to report earnings on Feb. 2, and this could be a pivotal moment for the stock.
Currently, Palantir's stock trades at a sky-high valuation that will require rapid and sustained growth to justify. If management's guidance doesn't blow expectations out of the water, the stock could see a large sell-off.
On the flip side, if it exceeds expectations and gives a rosy outlook, the stock could rocket higher.
The one thing I'm fairly confident that Palantir's stock won't do is stay flat. So, what should investors expect on Feb. 2? Let's find out.
Image source: Palantir.
Palantir's business continues to succeed
One of the reasons why Palantir's stock has become so popular is that it's an artificial intelligence application company that's actually succeeding. It provides AI software that helps users make real-time decisions. This has been deployed to users for battlefield analysis and government surveillance, while also seeing success on the commercial side in insurance and banking.
There is a wide variety of use cases for AI software that can process a ton of data, and Palantir is a top provider.
Furthermore, the company has also incorporated generative AI features, which make it easier to use and program than ever. The combination of these two products has caused Palantir's business to soar and deliver incredible growth results.
NASDAQ: PLTR
Key Data Points
Last quarter, Palantir's revenue rose an impressive 63% year over year to $1.18 billion. Strength came from both commercial and government sectors, with commercial revenue rising 73% year over year to $548 million and government revenue increasing by 55% to $633 million. It will be key for investors to see the continued success of both client bases in 2026, but the largest growth will likely come from U.S. commercial clients.
In the fourth quarter, U.S. commercial rose a jaw-dropping 121% year over year to $397 million, its best-performing segment by far. If U.S. commercial demand for AI software stays elevated, which is a pretty safe bet, then Palantir's stock should deliver plenty of growth.
But is it enough to justify its valuation?
Palantir needs several years of growth to trade at a reasonable level
During Q3, Palantir's profit margin was 40%. That's a level that few companies ever reach, and represents a full profitability level.
As a result, valuing the company based on earnings is a smart idea. It's not unheard of for some software stock to trade at 50 times earnings over the long term, so we'll set that as our base valuation level.
At 50 times trailing earnings and a 40% profit margin at today's current $394 billion market cap, that would require $7.9 billion in profits and $19.7 billion in revenue. For reference, Palantir's revenue totaled $3.9 billion over the past 12 months.
That's a ton of growth baked into the stock, which could make it difficult to rise higher from here. For 2026, Wall Street analysts project 43% revenue growth. That will likely slow down as Palantir gets larger, so let's use a 40% compound annual growth rate (CAGR) as a long-term growth rate.
If Palantir grows at a 40% CAGR, it would take 4.5 more years to reach that threshold. That's a long time to hold onto the stock without its price changing, which makes me concerned that Palantir's stock will be dead money over the next few years.
As a result, I'd be surprised if the stock skyrockets after earnings on Feb. 2. There are plenty more reasonably priced AI investments, and I think investors should look there before considering a Palantir investment.
