Palantir's financial report exceeded expectations and raised its full-year guidance, and the stock price fell sharply after the market

Source: Wall Street Insights

Palantir, a popular AI stock, significantly exceeded market expectations in its first-quarter performance and substantially raised its full-year guidance. Despite its outstanding performance, it faces the pressure of a correction due to its high valuation.

On Monday, Palantir released its first-quarter results. Its U.S. government and commercial businesses performed strongly, with revenue far exceeding Wall Street's expectations:

- The revenue in the first quarter reached $884 million, higher than the analysts' expected $863 million. It increased by 39% compared to $634.3 million in the same period last year. The adjusted earnings per share were $0.13, meeting market expectations.

- The net revenue increased to approximately $214 million ($0.08 per share), showing a significant improvement compared to approximately $105.5 million ($0.04 per share) in the same period last year.

- The operating profit margin in the first quarter reached 19.9%, a substantial improvement from 12.8% in the same period last year.

- The U.S. government business grew by 45% to $373 million, while the U.S. commercial revenue soared by 71% to $255 million.

CEO Alex Karp attributed the growth in the government sector to the wider adoption of its tools by U.S. government departments. He pointed out that the demand for large language models and supporting software has "become a craze." However, due to the company's current high valuation and investors taking profits, the stock price faces the pressure of a correction, falling by more than 8% after the U.S. stock market closed.

The Cost of High Valuation: Even Outstanding Performance Struggles to Meet Market Expectations

Since Palantir launched its new "Artificial Intelligence Platform" in April 2023, its AI commercial department has experienced rapid growth. The company's stock price also soared from less than $10 per share in the middle of 2023 to nearly $120 per share, bringing its valuation close to $300 billion.

Since the beginning of this year, Palantir's stock has become the best-performing component stock in the S&P 500 index. The stock price has increased by 64% since the start of the year, completely ignoring the general downward trend of technology stocks in 2025.

However, in terms of the price-to-sales ratio (P/S ratio) for the next 12 months, Palantir's P/S ratio is 102.3422, making it the company with the highest valuation in the S&P 500 index, more than twice that of the second-ranked Texas Pacific Land. It is also much higher than other companies in the same industry, such as SoftCloud Technology's 32.6396 and FAIR ISAAC's 27.0903.

In addition, Palantir's price-to-book ratio (P/B ratio) is 54.066, also much higher than other companies in the same industry, such as SoftCloud Technology's -587.9655 and FAIR ISAIC's -44.3537.

Analysts said that for companies with already extremely high valuations, investors expect to see not just performance that meets expectations but surprises that far exceed expectations. This explains why even though Palantir released such a strong financial report, its stock price still plunged after the market closed.

Full-Year Guidance Significantly Raised, and the Long-Term Prospects of AI Remain Promising

With the strong growth of its AI business, Palantir has significantly increased its full-year revenue outlook.

- It is expected that the revenue this year will be between $3.89 billion and $3.90 billion, significantly higher than the $3.74 billion to $3.76 billion predicted in its last financial report. The company also expects the revenue for the current quarter to be between $934 million and $938 million.

- The adjusted operating income is expected to be in the range of $1.711 billion to $1.723 billion.

- The adjusted free cash flow is expected to be between $1.6 billion and $1.8 billion.

Karp wrote in a letter to shareholders:

We believe that our performance indicates that a revolution is sweeping through our business and industry.

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