Palantir’s Moment of Truth: Blowout Q4 or Valuation Reckoning for AI’s Most Controversial Stock

Palantir Technologies reports fourth-quarter 2025 earnings after the close today, and the setup is unusually tense for a company that has spent the last two years redefining what “software growth” looks like in the AI era. Expectations are high, conviction is divided, and price action heading into the print suggests investors are no longer willing to blindly chase the story. Instead, this is a classic “prove it again” quarter—one where fundamentals likely matter more than hype.

Price Action: From Momentum Darling to Test Case

Shares of Palantir Technologies have struggled into the report, falling roughly 15–20% since the Q3 earnings release and nearly 30% from the November peak. That drawdown has occurred despite little deterioration in consensus estimates, highlighting the central tension around the stock: fundamentals remain strong, but valuation tolerance has dropped sharply amid a broader selloff in high-multiple software and AI-linked names.

This is also the first time in two years that Palantir has not meaningfully rallied into an earnings print. The stock has broken below its 50-, 100-, and 200-day moving averages, pushing it close to technical oversold territory. Options markets are pricing a roughly 9% post-earnings move, underscoring how binary sentiment has become.

Why Palantir Is Still “Not Loved”

Despite its operational momentum, Palantir remains controversial for several reasons. First, it sits at the uncomfortable intersection of enterprise software and defense-linked AI—two areas currently facing skepticism. Investors are increasingly worried that generative AI tools could compress margins or disrupt traditional software pricing, even as Palantir argues AI is expanding its addressable market.

Second, valuation remains extreme. Even after the selloff, Palantir trades at well over 140x forward earnings by many estimates, placing it among the most expensive stocks in the S&P 500. That forces the company to deliver not just strong results, but accelerating growth, expanding margins, and bullish guidance—all at once.

Finally, Palantir’s government exposure, while a strength fundamentally, still makes some investors uneasy due to political risk, procurement cycles, and concerns around vendor concentration, particularly under shifting administrations.

Q4 Expectations: A High Bar, Clearly Defined

Wall Street expects another strong quarter. Consensus estimates call for adjusted EPS of about $0.23, up from $0.14 a year ago, representing roughly 60–65% year-over-year growth. Revenue is expected to land between $1.30 billion and $1.34 billion, implying growth north of 60%.

Importantly, these numbers are already above the company’s own Q4 revenue guidance midpoint of roughly $1.329 billion, meaning the market is effectively pricing in a beat. That raises the bar for the reaction: simply meeting expectations may not be enough.

Segment-wise, U.S. commercial revenue remains the focal point. Bloomberg consensus suggests U.S. commercial revenue could rise more than 120% year over year to roughly $475–480 million, while U.S. government revenue is expected to grow around 50% to roughly $520 million and remain the largest single contributor.

Growth Metrics Investors Are Watching Closely

The most important question is not whether Palantir grows, but whether its growth decelerates—and if so, how quickly. Management’s Q3 commentary offered unusually rich insight into why investors are confident heading into Q4.

In Q3, total revenue grew 63% year over year, while U.S. commercial revenue surged 121%. Net dollar retention reached 134%, customer count rose 45% year over year, and the company posted a Rule of 40 score of 114%, one of the highest ever reported in enterprise software.

Even more important was the qualitative shift in customer behavior. Management emphasized that deployments are increasingly enterprise-wide rather than single-use-case pilots, with customers expanding rapidly across multiple workflows. Pilot-to-production conversion rates reportedly jumped from historical assumptions of 15–20% to closer to 40–50% in recent cohorts, materially improving revenue visibility and monetization speed.

Investors will be looking for confirmation that these trends persisted—and ideally accelerated—in Q4.

Key Items to Watch in the Print

Beyond headline EPS and revenue, several metrics will likely dictate the stock’s reaction:

• U.S. commercial growth rate and commentary on deal expansion • Total contract value (TCV) bookings and remaining deal value • Net dollar retention and customer concentration trends • Adjusted operating margin and Rule of 40 sustainability • Adjusted and GAAP free cash flow, particularly after Q3 margin compression • 2026 revenue growth guidance, especially for U.S. commercial

Forward guidance is critical. Bulls are looking for management to signal full-year 2026 growth comfortably above 40%, with some analysts modeling closer to 55–60% if current momentum holds.

Risks Lurking Beneath the Surface

The biggest risk is simply expectations. The market is already assuming another “beat and raise,” and anything less could trigger profit-taking. There is also concern around stock-based compensation, particularly if additional vesting events hit SG&A as the share price recovered earlier in the year.

Free cash flow bears watching as well. While adjusted free cash flow margins remain strong, GAAP metrics compressed in Q3, raising questions about how sustainable current margin levels are as the company continues to invest aggressively in product and talent.

Finally, macro sentiment matters. Even a strong print may not immediately re-rate the stock if the broader software tape remains under pressure.

Valuation: The Elephant in the Room

Palantir’s valuation remains its most controversial feature. Depending on assumptions, the stock trades anywhere from 140x to well over 200x forward earnings. That multiple only works if growth remains exceptional and durable.

The bull case is straightforward: Palantir is not a traditional software vendor, but an AI operating system embedded deeply in mission-critical workflows, with expanding use cases, high switching costs, and accelerating enterprise adoption. If that narrative holds, valuation becomes a secondary concern—until growth cracks.

The bear case is equally clear: any sign of deceleration, margin pressure, or weaker guidance would make the multiple indefensible very quickly.

Bottom Line

Palantir heads into its Q4 earnings report as one of the most consequential prints in the AI software space. Fundamentals look strong, momentum appears intact, and analyst sentiment has turned more constructive following the recent selloff. But expectations are elevated, valuation is unforgiving, and the market is no longer willing to give the benefit of the doubt.

This quarter is less about proving Palantir can grow—and more about proving it can keep growing fast enough to justify the premium.