Palantir's Earnings Highlight Growth Imbalance and Valuation Concerns

Palantir Technologies (PLTR) delivered robust Q1 2025 results, with total revenue surging 39% year-over-year to $884 million, fueled by a 55% jump in U.S. revenue. Yet, shares fell 9% post-earnings as investors zeroed in on two critical issues: underwhelming international performance and an eye-popping valuation that rivals the priciest stocks in the Nasdaq 100. Let’s dissect the numbers to understand why this “AI operating system” company faces a pivotal crossroads.

U.S. Dominance vs. International Stagnation

Palantir’s U.S. revenue now accounts for 71% of total sales, up from 68% a year ago. The commercial segment, driven by clients like Citi and BP, grew 71% to $255 million, while government revenue (including defense and intelligence contracts) rose 45% to $373 million. CEO Alex Karp called this a “ravenous whirlwind of adoption” for AI tools, particularly in defense modernization.

But the international story is starkly different. Non-U.S. revenue represented just 29% of total sales, with no explicit growth rate provided—a red flag. While global government revenue grew 44%, the commercial segment in Europe slumped 10% year-over-year, citing “regulatory headwinds” and slower AI adoption. The NHS Federated Data Platform (FDP) project in the UK, a £330 million deal, remains mired in implementation delays: only 45 of 108 hospital trusts had adopted the platform by April 2025, lagging internal targets.

Valuation: A “Rational” Bubble?

Palantir’s stock trades at 238x forward earnings, a staggering multiple even for high-growth software stocks. For context, peer NVIDIA trades at 26x, and Broadcom at 31x. The company’s price-to-sales ratio hit 73x, over 400% higher than the average for AI-focused software firms.

Analysts are skeptical. Morningstar revised its fair value to $100 (up 11%) but maintained a “very high uncertainty” rating, noting the stock’s reliance on “already priced-in” growth. Meanwhile, the Rule of 40—a metric combining revenue growth and operating margins—scored 83 (39% growth + 44% margin), far exceeding the 40+ threshold for software firms. Yet, this hasn’t translated to investor confidence, as the stock has a beta of 2.15, meaning it’s twice as volatile as the broader market.

Cash, Contracts, and the Path Forward

Palantir isn’t without strengths. Its adjusted free cash flow hit $370 million (a 149% year-over-year jump), and cash reserves stand at $5.4 billion. The company also secured strategic deals:
- A $30 million contract with U.S. Immigration and Customs Enforcement for its “ImmigrationOS” system.
- A partnership with Qualcomm to embed Palantir’s AI into edge computing hardware.
- A joint venture with TWG Global to target financial services markets.

However, the lack of international growth targets in its guidance raises questions. With 55% of revenue tied to government contracts (vulnerable to budget cuts), Palantir’s future hinges on diversifying its customer base and scaling beyond the U.S.

Conclusion: A Stock for True Believers or a Value Trap?

Palantir’s Q1 results underscore a company thriving in its core U.S. markets but struggling to replicate that success globally. The valuation is a double-edged sword: while cash flows and margins are strong, the 238x multiple requires unsustainable growth to justify.

Investors face a choice:
- Bulls: Bet on Palantir’s AI leadership, defense-tech tailwinds, and a $5.4 billion cash war chest. The stock’s 64% year-to-date rally suggests retail investors are buying into its “operating system of the future” narrative.
- Bears: Worry about overvaluation, execution risks in Europe, and competition from hyperscalers like Microsoft and Amazon. The stock’s post-earnings drop reflects skepticism about whether growth can meet inflated expectations.

The data is clear: Palantir’s valuation is a high-wire act. Without a turnaround in international markets or a contraction in its valuation multiple, the stock’s current price may prove unsustainable. For now, the “irrational exuberance” around its AI potential is outweighing the reality of uneven global adoption.

In short, Palantir’s Q1 results are a mixed bag—proof of domestic dominance but a wake-up call about its global ambitions. Investors must decide whether to pay for the dream or demand results in Europe.