Palantir Exceeds Q3 Earnings, But Concerns Over Its Sky-High Valuation Make Its Stock Slip Despite A Positive Outlook

Despite concerns from some analysts about the potential impact of the ongoing U.S. government shutdown, Palantir (PLTR) released a fourth-quarter outlook on Monday that exceeded Wall Street expectations.

The company's stock dropped over 8% in pre-market trading, nearly erasing the 7% gain seen immediately after the earnings report was released.

Palantir announced that it expects fourth-quarter revenue to slightly surpass $1.3 billion, higher than the $1.2 billion forecasted by Wall Street analysts tracked by Bloomberg. The defense technology company also expects its adjusted operating income for the quarter to be between $695 million and $699 million, well above the market expectation of approximately $575 million.

Meanwhile, the company raised its full-year revenue guidance from $4.15 billion to $4.4 billion.

However, concerns over Palantir's performance and outlook not matching its valuation have led to expectations that the stock will likely decline after opening, retreating from its historic closing high on Monday. The stock has gained more than 170% this year.

"All these numbers are completely disengaged from fundamentals," said Gil Luria, an analyst at D.A. Davidson, in an interview with Bloomberg. "This is a company with a $4 billion run rate that’s growing 63%. There’s nothing even remotely close to that, which is how we got to the situation where the valuation is at unprecedented levels."

Palantir sells artificial intelligence software to both U.S. and international enterprises and government agencies. Its technology has a wide range of applications, including supply chain analysis, surveillance, and military target identification. However, the company's contracts with the Israeli military and U.S. Immigration and Customs Enforcement (ICE) have sparked public opposition.

Additionally, Palantir's third-quarter performance also exceeded analysts' expectations. The company's adjusted earnings per share were $0.21, above the Wall Street estimate of $0.17, and more than double the $0.10 earnings per share reported in Q3 2024.

For the three months ended September 30, the defense technology firm reported revenue of $1.18 billion, a 63% increase year-over-year, surpassing the Wall Street estimate of $1.09 billion.

The core driver behind Palantir's revenue beat came from its U.S. business. Revenue from U.S. government contracts grew 52% to $486 million, exceeding the expected $471 million, while revenue from its U.S. commercial segment surged 121% to $397 million, also beating the $342 million estimate.

In a letter to shareholders on Monday, CEO Alex Karp referred to Palantir's U.S. commercial business as an "absolute giant."

While Palantir's revenue and profits have exceeded Wall Street expectations for the past two quarters, the stock's performance has been mixed due to weaker international business results.