Palantir's Post-Earnings Plunge: Still Too Pricey

Palantir Technologies (PLTR) delivered a strong earnings report in early May 2025, with revenue soaring 39% year-over-year to $884 million—easily surpassing Wall Street’s estimates. Yet its stock price tumbled 12–15%, wiping out $35 billion in market value. The sell-off underscored a stark reality: even as Palantir’s AI-driven growth accelerates, investors remain unconvinced its sky-high valuation is sustainable.

The plunge reflects a broader reckoning with the company’s reliance on U.S. government contracts, slowing international growth, and a price tag that defies conventional metrics. While bulls see Palantir as a “generational” AI play, bears argue its valuation—now over 200x forward earnings—is detached from reality. The question now is whether Palantir can prove skeptics wrong or if its stock remains a cautionary tale of overvaluation.

The Earnings Surge—and the Downside

Palantir’s Q1 results were unequivocally strong. U.S. commercial revenue jumped 71% to $255 million, driven by AI projects with clients like Citi and BP. The government segment surged 45% to $373 million, fueled by Pentagon contracts for its Maven AI system. Perhaps most striking was its $178 million deal with the U.S. Army to equip military vehicles with AI tools—a clear sign of Pentagon’s growing reliance on its software.

But the wins were offset by a glaring weakness: Europe. International commercial revenue fell 5% to $142 million, missing estimates by nearly $20 million. Europe’s share of total revenue dropped to 10%, down from 16% a year earlier, as regulatory hurdles and slower AI adoption stunted growth. CEO Alex Karp blamed Europe’s “lag behind the U.S. and China in AI investment,” citing “hundreds of billions” spent by those nations.

The company also faces reputational risks tied to its ties to controversial U.S. policies. Karp’s praise for former President Trump’s cost-cutting agenda and the Department of Government Efficiency (DOGE)—a federal agency criticized for its aggressive immigration policies—has deterred European buyers, who view the company as politically polarizing.

Valuation: A Wall Too High to Climb?

The stock’s collapse stemmed largely from its stratospheric valuation. At over 200x forward earnings, Palantir trades at seven times the multiple of NVIDIA (32x) and six times that of Broadcom (34x). Analysts argue such a premium is unjustified, even with 40% annual revenue growth.

Jefferies’ Brent Thill called the 56x revenue multiple “unprecedented,” noting that growth alone cannot sustain such a valuation. Palantir’s margins are also under pressure: its adjusted EBITDA margin narrowed to 18% in Q1, down from 23% a year earlier.

Bulls like Wedbush’s Dan Ives remain optimistic, citing Palantir’s “generational AI platform” and raising his price target to $140. But bears like RBC’s Gregg Moskowitz counter that its sales model—relying on intensive “bootcamp” client onboarding—lacks scalability. “Europe’s market is critical for global expansion, and Palantir is failing there,” he said.

The Geopolitical and Growth Crossroads

Palantir’s U.S. dominance is both a strength and a vulnerability. While U.S. revenue grew 55% to $628 million, non-U.S. sales now account for just 29% of total revenue—a worrying concentration. Karp’s comments about Europe’s “AI illiteracy” risked further alienating international clients, even as the region’s GDP growth lags behind the U.S. and China.

The company’s 2025 revenue guidance of $3.89–$3.90 billion reflects confidence in its core markets. But investors want proof that Palantir can replicate its U.S. success abroad. “The path to a $1 trillion market cap [as envisioned by Ives] requires geographic diversification,” said analyst Brian Gesuale. “Otherwise, Palantir remains a one-trick pony.”

Conclusion: Growth vs. Gravity

Palantir’s Q1 results highlight its ability to deliver in its core markets. The U.S. government and commercial sectors are fueling explosive growth, with deals over $1 million surging to 139 in Q1—up from 100 in 2024. Its AI tools, like those embedded in military vehicles, suggest a long runway in defense tech.

Yet the stock’s valuation and geographic imbalances remain critical risks. With a market cap of $33 billion and a $4 billion revenue target, Palantir trades at 8x revenue—a ratio far higher than peers like Microsoft (6.7x) or even AI-focused companies like NVIDIA (3.4x).

For investors, the choice is stark: bet on Palantir’s potential to dominate AI-enabled enterprise software and geopolitical defense tech, or acknowledge that its price tag may already reflect too much optimism. Until Palantir proves it can win over Europe or justify its valuation through margin expansion, the stock will remain a high-risk, high-reward proposition. As one analyst put it: “Palantir’s growth is real, but its valuation is asking us to believe in magic—and magic often fades.”