Is Palantir Overvalued, or Is It Just Getting Started?

The debate over Palantir Technologies' valuation has long been a polarizing topic among investors. Critics argue that its market capitalization outpaces traditional metrics, while proponents see a company poised to dominate the enterprise AI and data analytics space. To resolve this tension, we turn to the , a critical benchmark for SaaS companies that evaluates the sum of revenue growth and profit margin. Palantir's recent financial performance-marked by explosive growth and expanding margins-suggests its valuation may not only be justified but undervalued given its trajectory.

The Rule of 40: A Framework for SaaS Valuation

The Rule of 40 posits that a SaaS company should aim for a combined revenue growth rate and profit margin exceeding 40%. This metric balances scalability (growth) and sustainability (profitability). For Palantir, the numbers are staggering. In Q3 2025, the company , driven by and a . This dwarfs the industry benchmark and underscores Palantir's unique position as both a high-growth and high-margin enterprise. Even in Q2 2025, , combining with a .

Revenue Growth: A Catalyst for Valuation Justification

Palantir's revenue growth has been nothing short of meteoric. For Q3 2025, , . More striking is the performance of its U.S. commercial segment, which . This segment, often seen as a bellwether for long-term sustainability, reflects Palantir's ability to penetrate high-margin markets beyond government contracts.

The company's full-year 2025 revenue guidance has been raised to , implying . Such guidance, , suggests Palantir is not merely maintaining momentum but accelerating.

Profitability and Free Cash Flow: A Rare SaaS Hybrid

Palantir's profitability metrics further bolster its valuation. In Q3 2025, , representing a . This level of cash generation is rare for a company with such high growth rates and provides a buffer for reinvestment, R&D, or shareholder returns.

. Unlike many SaaS firms that prioritize growth at the expense of margins, .

Valuation in Context: High Multiples, High Justification

Critics often cite Palantir's price-to-sales (P/S) ratio as excessive. However, this metric fails to account for its and . When compared to peers like Snowflake or Databricks, , .

Moreover, Palantir's enterprise AI platforms are increasingly embedded in critical infrastructure, from defense to healthcare. .

Conclusion: A Company in Its Infancy

Palantir's financials tell a story of a company that is just getting started. Its Rule of 40 scores, revenue growth, . While skeptics may question its valuation, . For investors willing to look beyond short-term multiples, .