Palantir’s Big Test: AI Hype Meets Government Spend Reality in Q1 Earnings

Palantir Technologies (PLTR) is set to report its first-quarter 2025 earnings on Monday, May 5, after the market closes. Analysts expect the company to post adjusted earnings per share (EPS) of $0.13, representing a 62% year-over-year increase, with revenue projected at $862.9 million, up 36%. But beyond those numbers, the stakes are high for a company that has surged from $20 last summer to around $120 per share, pushing its valuation into rarefied air. Now trading at roughly 78 times price-to-book, Palantir sits among the most expensive names in the software universe. As a result, this earnings report is less about whether Palantir beats expectations, and more about whether it can justify its premium.

At the center of investor attention will be Palantir's government business, which accounts for over 55% of total revenue. Analysts expect government revenue to rise 37% to $460 million. Palantir has recently won notable deals, including a new $30 million contract with U.S. Immigration and Customs Enforcement and an AI-enabled system acquisition by NATO. These developments should help counter recent concerns about potential federal budget tightening and defense-related spending slowdowns. On the commercial side, revenue is forecast to grow 35% to $403 million, supported by the company’s Artificial Intelligence Platform (AIP), which continues to attract new clients across sectors like healthcare and financial services.

While Palantir's core government customer base provides a strong revenue floor, the key question is how quickly it can monetize its AI offerings. Investors are keenly watching adoption trends for AIP, particularly in the U.S. commercial market, which has grown rapidly thanks to a "boot camp-style" onboarding model. Management commentary around AIP monetization will be crucial, especially after RBC Capital noted that revenues tied to generative AI remain in early stages and have not yet become material. If CEO Alex Karp can articulate a credible roadmap for meaningful AI-derived revenue growth, that could help sustain Palantir's high multiple.

Peers to watch around the report include other software names heavily exposed to U.S. federal spending such as ServiceNow (NOW), Informatica (INFA), CommVault (CVLT), NICE Ltd (NICE), and Cloudflare (NET). These stocks have been impacted by federal spending concerns, and their relative performance could serve as a sentiment barometer.

The bull case for Palantir is centered on its unique position at the intersection of AI and national security. Bulls argue that the company’s ontology-driven platform represents the most advanced implementation of AI orchestration in enterprise software, enabling unprecedented efficiency and decision-making. The NATO contract, rapid adoption of AIP, and consistent profitability are used to argue that Palantir is transitioning from promise to performance. The firm’s healthy balance sheet, boasting nearly $5 billion in cash and marketable securities with no debt, is another point in the bulls' favor.

Bears, however, highlight the stock’s sky-high valuation, arguing that Palantir trades more like a high-growth biotech than an enterprise software firm. At an enterprise value 78x FY25 sales, expectations are already lofty. The risk is that commercial traction disappoints or government contracts face delays, especially with growing political debate around defense spending. There are also concerns about the company’s dual-class share structure and dilution from stock-based compensation, including a notable $120 million charge in Q4 2024.

To gauge whether Palantir is living up to its premium, investors should focus on the following:

• Government revenue growth and contract wins, particularly in light of NATO and DoD spending plans.
• Commercial revenue expansion and updates on AIP monetization.
• Contribution margin (currently around 60%) and its direction.
• Net dollar retention trends as a measure of customer stickiness and upsell success.
• International growth, especially signs of traction in Western Europe.

Palantir has now posted GAAP profitability for two consecutive years and has a strong earnings surprise history. It has beaten or matched consensus estimates in each of the last four quarters. However, volatility remains extreme. The stock has a historical intraday swing of over 5.6%, compared to just 1.2% for the S&P 500.

Ultimately, Palantir’s Q1 earnings aren’t about whether it can beat by a penny—they’re about whether the company can convert its AI vision into sustainable, broad-based growth. With sentiment high, valuation stretched, and federal scrutiny looming, Monday’s call could mark an inflection point in the stock’s narrative.