Palantir Technologies reported better-than-expected third-quarter earnings, headlined by surging growth in business-to-business sales. The stubborn stock still wouldn't rise.
The results crystallize Palantir's transition from a government contractor to a vendor for the much larger and less politically-risky commercial world. The third quarter marked the first time in the company's history that U.S. commercial revenue surpassed U.S. government revenue.
Palantir shares dropped 3.8% to $171.66 in after-hours trading. The stock has stagnated this year because of its high valuation and concerns that artificial-intelligence tools would disrupt software businesses. It was a Barron's stock pick last month.
Palantir reported adjusted earnings of 44 cents a share for the third quarter, above analysts' consensus estimate of 40 cents, per FactSet. Revenue grew 96% year over year to $2.3 billion, ahead of Wall Street's call for $2.2 billion.
Palantir software takes the flood of data organizations produce, and uses AI to make sense of it, surface hidden connections, and aid in decision-making. The company's roots are in U.S. intelligence and defense work, but its software is now finding a home at U.S. companies. U.S. commercial sales grew triple-digits for the fifth quarter in a row, soaring 148% to $984 million in the third quarter.
The company expects revenue of $2.65 billion in the fourth quarter, ahead of the $2.46 billion analysts had anticipated. Adjusted operating income is expected to be $1.64 billion, well above Wall Street's estimate of $1.43 billion.
The third-quarter outperformance now means revenue growth has accelerated every period since the third quarter of 2023. CEO Alex Karp attributed the rapid growth to demand for what he calls "sovereign AI," which refers to organizations retaining greater control of the AI models they use.
The sovereign AI concept has become a key part of how Palantir differentiates itself from model providers like Anthropic and OpenAI. In a sprawling earnings call Monday, Karp denied that Palantir's offerings were in direct competition with those providers.
"I don't know at what point we become competitive with each other, but at this point in the U.S., the market for us is insatiable," Karp said. "The market is exploding around us and they are helping it explode."
Palantir has been hosting sovereign AI boot camps to expand and quicken AI deployment among customers. The events have strengthened the company's sales pipeline, Karp told investors on a conference call, using some curious metaphors.
"This is like 'first date into bed' kind of thing," he said about the speed of sales. "We've gone from being the most attractive person in the physics department to being the captain of the football team."
Palantir's momentum seems to stop at the U.S. border, though. In international markets, the voluminous Karp has become a lightning rod, and it has made the company a political football. International revenue grew 26% from a year ago in the third quarter -- a much slower clip than the rest of the business.
Palantir's valuation also continues to be a question. The company has a committed corps of retail investors who are ready to buy into price dips in the stock, and in concert with the financial performance, it fetches a very high multiple. Ahead of the earnings report, shares traded at 81 times projected earnings for the next 12 months.
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