Palantir’s first-quarter revenue hits a record high, raising its full-year outlook—can investors still enter at this high valuation?

American data analytics company Palantir Technologies Inc. recently released its first-quarter earnings, with overall revenue beating market expectations and raising its full-year financial outlook. In the first quarter, the company’s total sales reached a record $1.63 billion, driven mainly by strong growth in U.S. government contracts. However, revenue performance in the company’s U.S. commercial segment fell short of market expectations. Palantir’s high valuation has long been a point of debate in the market. Even though PLTR is down 18% this year, it is still trading at 43 times the forward price-to-sales ratio, remaining the most expensive stock in the benchmark index.

Palantir earnings data analysis and full-year revenue outlook

Palantir reported first-quarter revenue of $1.63 billion, better than the expected $1.54 billion, hitting a historical high. The company also raised its full-year revenue forecast from $7.19 billion to $7.65 billion–$7.66 billion. This outlook reflects management’s positive expectations for operations. Despite solid financial performance, investors are concerned about potential risks to the software industry amid advances in artificial intelligence, and Palantir’s stock (PLTR) is down 18% year-to-date. After the earnings release, the stock price initially rose and then fell in after-hours trading, trading at $142.

Government contract growth and commercial revenue challenges

In terms of business structure, first-quarter revenue from the U.S. government segment reached $687 million, exceeding analysts’ estimate of $610.5 million. CEO Alex Karp said the U.S. business has grown by a multiple over the past year. Palantir has long been a supplier to U.S. government agencies (such as the Department of Defense and U.S. Immigration and Customs Enforcement), and has maintained defense partnerships with governments worldwide. However, first-quarter U.S. commercial sales were $595 million, missing market expectations. This suggests corporate customers’ attitude toward spending on data analytics software may currently be relatively cautious.

AI market competition and defense security positioning

An HSBC assessment said that lower barriers to artificial intelligence technology are putting Palantir into fierce competition with peers. Even so, the company continues to actively strengthen its defense edge, providing the U.S. military with the “Maven Smart System” on an ongoing basis. Palantir recently issued a statement, reiterating its obligation for tech companies to participate in national security. However, its stance on involvement in immigration law enforcement continues to trigger calls from some investment institutions to divest and social controversy.

Can you still get in with Palantir’s high valuation?

Palantir’s high valuation has long been a focus of market discussion. Looking back to less than a year ago, the company’s forward price-to-sales ratio had been close to 90 times, setting then the highest record among S&P 500 index constituents. Although this year’s market sell-off has narrowed its valuation by more than half, it still trades at 43 times the forward price-to-sales ratio, remaining the most expensive stock in the benchmark index.

Michael Burry, the star of the big short, previously issued harsh criticism of the company and pointed out potential competitive risks from generative AI models. Although the stock price has undergone a correction, Palantir’s current forward price-to-sales ratio is still as high as 43 times, the highest among constituents of the S&P 500. Wall Street analysts are divided on this view. Oppenheimer analyst gave an “outperform” rating and a $200 price target, saying it is becoming a leading platform for deploying AI applications and that the valuation is reasonable. In contrast, a Morningstar analyst maintained a “hold,” emphasizing that the market’s growth expectations for Palantir are extremely optimistic.

Note: The price-to-sales ratio (Price-to-Sales Ratio, abbreviated as P/S Ratio) mainly measures how much investors are willing to pay for each $1 of a company’s operating revenue. It is commonly used to analyze unprofitable or profit-unstable startups and technology companies.

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