Palantir Stock Jumps After Earnings. Why It’s the ‘Best Story’ in Software.

Shares of Palantir finished Monday’s regular session up 4.1%. (Hollie Adams/Bloomberg)

Data company Palantir Technologies blasted past the sky-high expectations for its second-quarter earnings report. Continued strength in U.S. sales is driving revenue growth and profitability.

“Our products were built for this moment, and the numbers show it,” said Chief Technology Officer Shyam Sankar on the earnings call.

“I’ve been cautioned to be a little modest about our bombastic numbers,” said CEO Alex Karp on the call. “But honestly there’s no authentic way to be anything but have enormous pride and gratefulness about these extraordinary numbers.”

Shares are up 6.9% at $1171.70 in premarket trading Tuesday. They closed Monday 4.1% higher at a new all-time high, according to Dow Jones Market Data.

Quarterly revenue grew to over a billion dollars for the first time, up 48% since the second quarter of 2024 and well ahead of the Wall Street analyst consensus of 38% growth. U.S. revenue was up 68% annually. There has been a lot of focus on new Palantir contracts with the federal government, including a 10-year, $10 billion deal that consolidates 75 contracts Palantir had with the U.S. Army. U.S. government sales were up 53% year over year.

But as in the first quarter, the star of the show was second-quarter U.S. commercial revenue, up 93% on the year. Palantir gets less traction outside the U.S., with commercial sales down 3% over the year, though international government revenue was up 37%.

That a growth-stage enterprise software company can expand at these rapid rates isn’t that rare, but Palantir sets itself apart by having the profitability metrics of a more mature business. Other companies often rely on large adjustments to generally accepted accounting principles to show profitability. Palantir doesn’t have to lean on that crutch. GAAP operating income was $269 million, a 27% margin. Over half of second-quarter revenue was converted into free cash flow. The company now has $6 billion in cash and short-term investments.

“We believe Palantir is the best story in all of Software,” wrote D.A. Davidson analyst Gil Luria, who raised his target price on the stock to $170 from $115 in a research note. However, he kept a Neutral rating on the shares, noting it trades at “an unprecedented premium to any peer,” with a valuation of more than 100 times its expected revenue this year.

Third-quarter guidance was for revenue growth of 50% and adjusted operating income growth of 80%, well ahead of Wall Street expectations of 35% and 55%, respectively.

As in its first-quarter earnings report, Palantir raised its annual 2025 guidance, this time by 6% on revenue and 12% on adjusted operating income.

“Now the legitimate question would be, can you keep this up for the next five years?” Palantir CEO Alex Karp told Barron’s on Monday. “And then the question is ‘how do you do that?’… And the simple answer is, the unit economics of Palantir are upstream from the unit economics of our clients. They want to pay to have financials that look like ours.”

Palantir makes software that takes data from disparate sources, integrates it, and puts it in front of customers in simple dashboards, drawing connections that aid in decision-making and projections. Its first customers were U.S. intelligence agencies who were struggling to manage the flood of new data sources in the wake of 9/11. From there it expanded to serving the military and commercial clients who were also running up against the same sorts of data problems.

Aside from the new service agreement, Palantir had another recent milestone with the Army. TITAN is a large truck carrying sensors, servers, and workstations for two soldiers, designed to be a mobile artificial-intelligence data analytics unit to be placed in the field. Though traditional defense names like Northrop Grumman and L3Harris Technologies contributed to the vehicle hardware, for the first time, a software company, Palantir, was the lead contractor. This may be indicative of where military procurement is headed in the long term.

Palantir’s share price is a topic of debate on Wall Street. The stock is up 567% from a year ago, when it closed at $24.09.

Analysts agree that Palantir has a lot of potential to grow. But the stock trades at 82 times the per-share sales expected for the next 12 months, versus a 6.1 ratio for the Nasdaq 100 index . On average, analysts have a price target of $116, but the calls range from $40 to $178.

“Palantir is trading at approximately 194 times forward-year (2026) consensus free cash flow, compared with the second highest multiple in the software industry of 47 times,” wrote William Blair analyst Louie DiPalma in a research note.

“Shares may continue to trade higher on new government contract wins and robust U.S. commercial adoption. In terms of downside risk, Palantir’s revenue growth will likely decelerate in the fourth quarter of 2025 and continue to do so throughout 2026 due to competitive forces.”

DiPalma kept a Market Perform rating on Palantir stock with no target price.

Palantir’s earnings also get attention because of the swings in its stock following earnings. Palantir has reported 19 quarterly results since it went public, and it beat analyst expectations for revenue in all but one.

But the reaction was negative in nine of those quarters. Altogether, the average stock move on the day after earnings, up or down, was 16%. A lot can be won or lost by trading Palantir stock around its earnings.

Write to Adam Levine at adam.levine@barrons.com and Adam Clark at adam.clark@barrons.com