Artificial intelligence (AI) poster stock Palantir Technologies (PLTR +6.75%) fell 18% in January, according to data provided by S&P Global Market Intelligence. Investors were worried about its high valuation and ability to keep reporting accelerating growth as it got closer to its earnings report. However, it reported blowout earnings, and the stock has already jumped 8% since the report yesterday.
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Great expectations
Palantir has been one of the biggest winners of the AI trend, and its stock has gained more than 1,500% over the past three years. It has a proprietary AI platform that organizes disparate data sets and helps organizations and businesses gain insight and take action.
There are several ways the company stands out and has a moat. It works with long-term contracts, which provide years of recurring revenue, and it had already been in the business for years before AI became a buzzword, giving it a first-mover's edge in the space. Although it has government and military contracts, today, every company wants the competitive value that AI creates, and its commercial business is growing quickly.
In the 2025 fourth quarter, it demonstrated accelerating growth and incredible strength. U.S. commercial revenue increased 137% year over year, driving U.S. growth of 93%, driving total growth of 70%. U.S. government sales, its older business, was no slouch either, up 66%.
It closed a record $4.3 billion in total contract value (TCV) in the quarter, up 138% year over year, and it reported $609 million in net income with a 43% margin.
These are fantastic results, but more than giving a glimpse into one quarter, they demonstrate that Palantir has many years of growth ahead.
NASDAQ: PLTR
Key Data Points
The worries are real
Palantir's fast growth and increasing profits have attracted investor attention, but Palantir stock is trading at an astronomical valuation of 346 times trailing 12-month earnings. That, along with fears about the company slowing down, led to the stock dropping prior to the report.
As I noted last week, the most important thing to watch in the earnings report was whether sales would accelerate, since that's what investors need to see at this kind of valuation. Palantir came through, and its business looks as strong as ever. Management is guiding for sales to increase 61% in 2026, which is an acceleration from last year. However, market worries aren't unfounded; there's no room for error at this valuation, which makes the stock risky.
There's still room for new investors to benefit from Palantir stock as long as they plan to hold for many years and can manage through volatility, and don't expect the same thrilling results it's delivered over the past few years. A dollar-cost averaging strategy might work here.
