Palantir Crushes Estimates with Record U.S. Commercial Surge — But is it Overvalued?

Deep Dive into $PLTR: Valuation, Segment Growth, Key Metrics, Profitability, Expenses, Product Launches, Customer Acquisition, Financial Stability, SBC/Revenue, and Shareholder Dilution.

Palantir delivered another quarter of standout execution — revenue growth is accelerating, U.S. commercial is surging nearly 100% year-over-year, and record TCV highlights rising demand for its AI platform. Recognition from top firms like Gartner and Forrester further cements its leadership in enterprise AI. Yet, with valuation still stretched and international growth lagging, the question becomes: can Palantir sustain this momentum while justifying such a premium price tag?

Table of Contents:

1. Company Overview – A brief summary of the company, including its mission, sector, competitive advantage, and total addressable market (TAM).

2. Valuation – Analysis of changes in Forward EV/Sales and Forward P/E multiples, along with comparisons to peers within the same sector.

3. Economic Moat – Evaluation of the company’s moat across five key types: Economies of Scale, Network Effect, Brand, Intellectual Property, and Switching Costs.

4. Revenue Growth – Review of revenue growth dynamics over the past two years.

5. Segments and Main Products – Overview of the company’s business segments, latest quarterly performance by segment, product innovation.

6. Market Leadership – Assessment of the company’s leadership status in its segment, as recognized by reputable rating agencies like Gartner, The Forrester Wave, etc.

7. Customers – Analysis of customer growth trends, customer success stories, and major customer wins.

8. Key Performance Indicators (KPIs) – Review of Retention, net new ARR, CAC payback period, RDI score, profitability, operating expenses, balance sheet strength, and shareholder dilution.

9. Conclusion – Final thoughts and summary based on the above analysis.

1. Company overview

About Palantir

Palantir is a software company founded in 2003 by Peter Thiel, Alex Karp, Joe Lonsdale, Stephen Cohen, and Nathan Gettings, headquartered in Denver, Colorado. The company specializes in big data analytics and integration platforms designed to process and interpret vast datasets. Palantir's primary products include Palantir Gotham for government and intelligence agencies, Palantir Foundry for commercial enterprises, Palantir Apollo for continuous software deployment, and the Artificial Intelligence Platform (AIP) for integrating large language models with organizational data.

Mission

Palantir's mission is to empower organizations to make sense of their data to solve complex problems and drive impactful decisions. The company emphasizes human-driven analysis augmented by advanced technology, aiming to enhance decision-making capabilities without replacing human intelligence. Palantir builds software platforms that integrate, manage, and secure data, enabling interactive and intuitive analysis accessible to non-technical users.

Sector

Palantir operates within the technology sector, specifically focusing on software solutions for big data analytics, artificial intelligence (AI), and data integration. The company initially served primarily government agencies but has significantly expanded into commercial sectors such as healthcare, finance, manufacturing, energy, automotive, and pharmaceuticals.

Competitive Advantage

Palantir's competitive advantage lies primarily in its high switching costs and proprietary intellectual property (IP). The company's platforms require extensive customization and integration into client workflows, resulting in substantial switching barriers estimated between $2.5 million to $7.5 million per enterprise client, with implementation periods of 6-9 months. Palantir holds over 3,400 global patents, covering machine learning algorithms, secure multi-party computation methods, predictive analytics models, natural language processing techniques, and advanced visualization tools. Additionally, Palantir's ontology framework differentiates its offerings by transforming complex datasets into actionable insights through AI-driven analytics.

Total Addressable Market (TAM)

Palantir operates within a total addressable market ranging from $200 billion to $1.8 trillion by 2030, depending on market definition. The most widely cited estimate places its TAM at $1.2–1.4 trillion, with Morningstar’s base case at $1.4 trillion. This is a dramatic expansion from the $119 billion TAM at IPO in 2020, reflecting how AI and advanced data analytics have transformed into core enterprise technologies.

Several forces are driving this growth. The launch of Palantir AIP in 2023 expanded access to AI by enabling natural language interfaces, broadening the customer base and increasing contract sizes. Enterprise digital transformation is accelerating, with 78% of global organizations now using AI in at least one business function, creating rising demand for platforms that unify and analyze complex datasets. The shift to cloud-based AI-as-a-Service further opens adoption to small and mid-sized enterprises, lowering barriers compared to legacy on-premise systems.

Palantir is also moving beyond government and defense into healthcare, finance, manufacturing, and energy—each multi-billion dollar vertical where AI-driven analytics can become essential.

In summary, Palantir’s addressable market has expanded more than tenfold since IPO, now estimated at $1.2–1.4 trillion, with growth of 18–25% CAGR expected through 2030. Even under conservative penetration assumptions, the long-term opportunity remains significant.

2. Valuation

$PLTR Palantir is currently trading at a Forward EV/Sales multiple of 75.3, significantly higher than its median of 17.5 since its IPO, reflecting a substantial premium. Forward EV/Sales multiple is more than 4 times higher than the median.

Among the SaaS companies I monitor, Palantir is the most expensive based on the Forward EV/Sales multiple.

In January 2023, Palantir’s Forward EV/Sales stood at 5, which has nearly increased 15x to 75.3 today. The forecast for 2025 FY revenue growth is 38.9% YoY, positioning Palantir as one of the most expensive SaaS companies based on the Price-to-Sales Growth (PSG) ratio.

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$PLTR Palantir is trading at a Forward P/E multiple of 209.9. With 48.1% YoY revenue growth in Q2.

The EPS growth forecast for 2026 is 26.2%, with P/E of 263.8, 2026 PEG ratio of 10.1.

The EPS growth forecast for 2027 is 35.5%, with P/E of 208.9, 2027 PEG ratio of 5.8.

From a PEG multiple perspective, the stock appears highly valued and high expectations are already priced into the stock price.

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The PEG (Price/Earnings to Growth) ratio is a key tool for evaluating growth stocks, introduced by Peter Lynch.

PEG < 1: Undervalued – A ratio below 1 suggests the stock is undervalued. For example, if the P/E is 15 and earnings are expected to grow by 20%, the PEG would be 0.75, indicating a good buying opportunity.

PEG = 1: Fair Value – A PEG of 1 means the stock price matches its growth expectations, representing fair value.

PEG > 1: Overvalued – A PEG above 1 indicates the stock may be overvalued, as its price is higher than its projected growth rate, making it riskier.

Valuation comparison

Analysts forecast $PLTR Palantir’s revenue growth at +38.9% for 2025 and +30.2% for 2026, the highest projected growth rate in the segment. Considering this revenue forecast, Palantir is trading at a premium valuation based on the EV/S multiple.

Analysts expect strong revenue growth, so let's examine the key metrics to determine whether these expectations are justified.

We'll evaluate the company's economic moat, which supports long-term revenue growth, analyze revenue trends and the forecast for next quarter, and identify key factors that could help the company exceed expectations and sustain future growth.

We'll assess the performance of key segments, the launch of new products and updates, customer acquisition growth, key financial metrics, financial stability, and margin trends.

Additionally, we'll review the SBC/Revenue ratio, shareholder dilution, and finally, draw conclusions on the company's outlook.

3. Economic Moat

Palantir has built a formidable economic moat through multiple defensive mechanisms that create substantial barriers to competition. Morningstar assigns the company a narrow moat rating based on switching costs and intangible assets, but recent developments suggest the moat is deepening across all traditional categories. Let's examine each component of Palantir's economic fortress.

Switching Costs

Palantir’s switching costs form its most powerful moat, creating near-insurmountable barriers. Enterprise clients face $2.5 million to $7.5 million in switching costs, with 6–9 months of integration time and data migration expenses ranging from $500,000 to $1.2 million. Once implemented, Palantir’s platforms embed deeply within operations, making extraction extraordinarily costly and risky. This is reflected in an exceptional 98% customer retention rate in 2024.

The moat is even stronger in government contracts. Palantir’s systems are so entrenched in the U.S. Defense Department that Pentagon officials have raised concerns about over-reliance. Analysts describe this position not as customer loyalty but as “irreplaceability.”

Intellectual Property

Palantir holds 3,438 patents globally, with 2,608 granted and over 80% active. The portfolio, while not the largest in volume, carries strategic weight. Advanced analytics rank Palantir as a likely disruptor in data analytics. The company aggressively defends its IP through legal action, including recent trade secret cases, signaling the value it assigns to its assets.

The portfolio spans network security, cryptography, distributed computing, access control, and client-server architecture. Notably, 50 patent families cover digital information transmission, while 17 families focus on malicious traffic detection. This breadth provides layered protection across core technologies.

Economies of Scale

Palantir has scaled revenue from $742 million in 2019 to a projected $3.9 billion in 2025, while maintaining 39% YoY growth and achieving an adjusted operating margin of 44%. The software model drives scale efficiencies, with marginal costs approaching zero as fixed development costs spread across a growing client base.

The company serves 849 customers, with revenue growing faster than customer count—evidence of strong upselling and improving unit economics. Customization limits pure scale benefits, as 87% of implementations require custom solutions, but the modular platform allows adaptation without rebuilding core functionality.

Brand Strength

Palantir’s brand is distinct, rooted in government intelligence and enterprise data solutions. Trusted by the U.S. Army, CIA, and major commercial enterprises, the company’s association with mission-critical national security work provides unmatched credibility, enabling premium pricing and long-term multi-million-dollar contracts.

Yet political risks loom. Surveillance capabilities have been controversial since inception, and recent scrutiny from lawmakers underscores reputational challenges. While this may limit expansion in some commercial markets, it reinforces the brand’s reputation for handling sensitive, high-stakes operations.

Network Effects

Network effects remain limited but are building. Palantir’s model does not create traditional user-to-user network effects, since most deployments serve individual organizations. However, the Artificial Intelligence Platform (AIP) is developing indirect network effects, as each deployment improves algorithms and capabilities that enhance outcomes for all clients, within strict security boundaries.

In government, institutional network effects are clear. Success with one agency strengthens credibility with others—work with the Army helps secure contracts with the Navy. Commercial adoption shows similar demonstration effects, lowering barriers for new enterprise customers.

In summary, Palantir possesses a strong and deepening economic moat that should provide sustainable competitive advantages for the next decade. The combination of exceptionally high switching costs and valuable intellectual property creates formidable barriers to competition. While economies of scale and network effects are still developing, they show clear improvement trajectories that should strengthen over time. The brand presents both significant advantages and manageable risks that require ongoing attention but don't fundamentally undermine the company's competitive position.

4. Revenue growth

$PLTR Palantir’s revenue growth has accelerated over the past seven quarters, reaching 48.1% YoY. If the company exceeds its forecast by 5.1%, average beat for the last 4 quarters, growth could reach approximately 57.5%, further accelerating revenue expansion.

Remaining Performance Obligations (RPO) accelerates to incredible +76.6% YoY growth in Q2 and higher than current revenue growth, indicating a likely future revenue acceleration. Billings growth also accelerates to +53.5% YoY, which is above revenue growth.

5. Segments and Main Products.

Palantir operates through two main segments: Government and Commercial. The Government segment serves defense, intelligence, and law enforcement agencies, providing analytics for national security, counterterrorism, and operational planning. The Commercial segment addresses industries such as finance, healthcare, manufacturing, and energy, delivering solutions for data integration, advanced analytics, and AI-driven decision-making.

The company’s flagship products are Gotham, Foundry, and Apollo. Gotham powers government clients by integrating diverse intelligence sources into actionable insights for strategy and execution. Foundry enables enterprises to unify data and apply analytics across complex organizations. Apollo delivers continuous software deployment with secure, real-time updates across distributed environments.

The Artificial Intelligence Platform (AIP) accelerates adoption of large language models by embedding AI into workflows quickly. Its design allows enterprises to operationalize AI use cases within days through streamlined boot camps.

At the core of Palantir’s ecosystem is the Ontology, which creates a unified semantic layer mapping enterprise data to real-world entities such as assets, transactions, and processes. Ontology integrates data, logic, and actions into a dynamic decision framework, supporting real-time decisions with embedded security and auditability. It now enables AI-driven workflows across 50+ sectors, enhancing precision and agility for both government and commercial clients.

Main Products Performance in the Last Quarter

$PLTR Palantir generates 55% of its revenue from the Government sector and 45% from the Commercial sector. Commercial segment's share decreased from 47% in Q1 2024 to 45%.

Breaking down $PLTR Palantir's revenue growth by segment, last quarter all segments saw an acceleration in growth.

• Government revenue growth increased to 49% YoY.

• Commercial revenue growth also accelerated to 47% YoY.

• U.S. Commercial revenue grew by 92%, outpacing the growth of International Commercial revenue.

Government

Government revenue reached $553M. U.S. government contributed $426M, growing 53% year-over-year. Key wins included the Army’s 10-year, up to $10B enterprise deal, a $218M Space Force order, and a $795M ceiling increase for Maven. International government rose 37% to $127M, driven by the U.K.

Commercial

Commercial revenue grew to $451M. U.S. commercial strength offset international weakness. U.S. commercial surged 93% year-over-year, while international fell 2% to $144M. Notable deals: an $88M healthcare contract signed one month after boot camp and a telecom increasing its contract 10x since 2022.

Artificial Intelligence Platform (AIP)

AIP drove U.S. commercial momentum. Revenue climbed 93% year-over-year, with record $843M in TCV, up 222%. Customers are re-platforming from hyperscalers to AIP, achieving faster time-to-value. AI FDE enables autonomous ontology editing, data transforms, debugging, and app creation. Warp Speed, built on AIP, cut production line balancing from 1 day to 1 hour.

Ontology

Ontology underpins AIP and is positioned as Palantir’s key differentiator. Management emphasized LLM fragility versus ontology’s “pure understanding.” It supports Ontology Web Services, where customers build directly on Palantir’s infrastructure. Ontology adoption contributed to 157 $1M+ deals, including 42 $10M+ deals.

Gotham

Gotham remains central to defense and intelligence. Maven Smart System usage doubled since February. Government adoption expanded with the Army’s enterprise deal and multi-domain defense contracts. Gotham anchors Palantir’s role in synchronized warfighting and intelligence analysis.

Foundry

Foundry drives commercial impact, increasingly integrated with AIP. Lear Corporation scaled to 11,000 users across 175 use cases. Citi reduced onboarding from 9 days to seconds, and Fannie Mae cut fraud detection from 2 months to seconds. Nebraska Medicine saw a 2,100% increase in discharge lounge utilization, creating what they call a “Palantir unit of time.”

Apollo

Apollo underpins both Gotham and AIP deployments, providing continuous secure software delivery across distributed environments. While less visible, it remains critical to scaling.

Innovation

AI FDE introduced autonomous agents to accelerate application building and debugging. Warp Speed expanded across nuclear, defense, and shipbuilding sectors. Ontology Web Services positioned AIP as a full development platform rather than a single software layer. Palantir also launched the American Tech Fellowship to credential frontline workers developing AI solutions, extending adoption beyond traditional enterprise users.

6. Market Leadership

Forrester Research places Palantir at the apex of AI/ML platforms for the third consecutive time. In Forrester's Q3 2024 AI/ML Platforms report, Palantir achieved Leader status with the highest ranking for Current Offering. Forrester specifically highlighted Palantir as having "one of the strongest offerings in the AI/ML space with a vision and roadmap to create a platform that brings together humans and machines in a joint decision-making model". This recognition builds on Palantir's previous #1 rankings in 2022 and 2024, establishing a pattern of sustained excellence that differentiates it from competitors experiencing fluctuating performance.

IDC confirms Palantir's market supremacy through multiple leadership designations. The company earned #1 ranking in IDC's Worldwide Artificial Intelligence Software Platform Sales with $1.4 billion in revenue, representing approximately 90% of Palantir's total revenue at the time. More recently, IDC named Palantir a Leader in the 2025 IDC MarketScape for worldwide AI-Enabled Source-to-Pay, demonstrating the company's expansion beyond traditional data analytics into specialized enterprise applications.

Gartner's assessment positions Palantir as a Visionary in Data Integration Tools through their Magic Quadrant analysis. While Gartner maintains Palantir's Visionary classification, the company demonstrates exceptional operational capabilities with 83% year-over-year growth in commercial customers reaching 300 clients by Q2 2024. Gartner specifically praised Palantir's "converged data management platform" and "GenAI-enabled integrations in Foundry". Notably, Palantir received the 2024 Customer Choice Award for Data Integration Tools based on Gartner Peer Insights customer feedback.

Recognition from Forrester, Gartner, IDC, and Dresner Advisory Services establishes Palantir as the undisputed leader in enterprise AI platforms. This leadership position, validated through multiple evaluation frameworks and sustained over consecutive years, provides significant competitive advantages in sales cycles where enterprise decision-makers rely heavily on third-party validation when selecting mission-critical software platforms.

7. Customers

$PLTR Palantir added 80 total customers, a record-level increase of +43% YoY.
The company also added 70 commercial customers, another record, with +48% YoY growth.

U.S. commercial customer growth was especially impressive — 53 customers added in Q2, nearly a record for the company, representing +64% YoY growth.

However, international commercial customer growth was weaker compared to the U.S., with just 17 customers added — but this was the highest addition in the past two years, and growth accelerated to +20% YoY from +15% in Q2.

Customer Success Stories

Palantir’s Q2 2025 earnings call highlighted customers realizing outsized impact from AI deployment. Citibank compressed onboarding and KYC from nine days to seconds, cutting costs and improving customer experience. Fannie Mae reduced mortgage fraud detection from two months to seconds, protecting the U.S. housing market from millions in potential losses. Nebraska Medicine reported a 2,100% increase in discharge lounge utilization, the equivalent of adding an entire hospital unit. They coined the phrase “a Palantir unit of time”, meaning value delivered in under an hour. Lear Corporation signed a five-year extension after scaling Foundry and AIP to 11,000 users and 175+ use cases, securing a first-mover advantage in the automotive industry. Palantir is not just selling software, it is compressing time-to-value at scale.

Large Customer Wins

Q2 delivered landmark enterprise contracts. Palantir secured a $218 million order with U.S. Space Force and expanded the Maven Smart System ceiling by $795 million. The highlight was a 10-year enterprise agreement with the U.S. Army worth up to $10 billion, consolidating 75 contracts into one. On the commercial side, Palantir booked $2.3 billion in TCV and $684 million in ACV, both record highs. It closed 157 deals above $1 million, including 66 worth $5 million+ and 42 worth $10 million+. A healthcare client signed an $88 million TCV contract one month after a bootcamp. An American telecom expanded its contract 10x since 2022, projecting hundreds of millions in savings. Palantir’s top 20 customers now generate $75 million each in trailing 12-month revenue, up 30% year-over-year.

8. KPI

Retention

$PLTR Palantir's Retention Rate (DBNRR) has been growing over the last seven quarters, reaching 128%, and remains at a high level, above the median of 119% for the SaaS companies I monitor.

Net new ARR

$PLTR Palantir added $481 million in net new ARR (Annual Recurring Revenue) in Q2 2025, representing a 481% YoY increase, demonstrating strong momentum in ARR growth.

This was the largest net new ARR addition over the past two years.

CAC Payback Period and RDI Score

$PLTR Palantir's return on Sales & Marketing (S&M) spending is 5.6 months, one of the best among top-performing SaaS companies.

The Customer Acquisition Cost (CAC) Payback Period is healthy compared to other SaaS companies, with the median for the SaaS companies I track being 26.9 months.

The R&D Index (RDI Score) for Q2 increased and is now at 3.7, the highest among the SaaS companies I monitor and significantly above the median of 1.1.

An RDI Score above 1.4 is considered best-in-class performance. The industry median of 0.7 highlights the importance of efficient R&D investment.

Profitability

Over the past year, $PLTR Palantir margins have changed:

• Gross Margin slightly decrease from 82.9% to 81.8%.

• Operating Margin increased from 37.4% to 46.2%.

• Adjusted Free Cash Flow Margin increased from 21.9% to 56.6%.

Operating expenses

$PLTR Palantir has reduced its operating expenses over the last two years.

• Sales & Marketing (S&M) expenses were reduced from 27% to 19% of revenue.

• Research & Development (R&D) expenses slightly decreased from 14% to 10%.

• General & Administrative (G&A) expenses were reduced from 16% to 11%, which is at the same level with R&D expenses.

Balance Sheet

$PLTR Balance Sheet: Total debt stands at $192M, while Palantir holds $6,000M in cash and cash equivalents, exceeding total debt and ensuring a healthy balance sheet.

Dilution

$PLTR Palantir's stock-based compensation (SBC) expenses decrease to 16% of revenue.

But Shareholder dilution remains extremely high, with the weighted-average number of basic common shares outstanding rising by 6.0% YoY. Dilution accelerated significantly in Q4 2024 and in Q1 2025.

9. Conclusion

This was another very strong quarter for Palantir $PLTR, marked by excellent execution, a major beat versus analyst expectations, and a significant outperformance relative to management’s own guidance. The company continues to enhance its platform and benefit from ongoing AI advancements, reinforcing its position as a leader in enterprise AI solutions.

Leading Indicators
• RPO growth accelerated to +76.6% YoY, exceeding revenue growth.
• Billings growth also accelerated to +53.5% YoY, outpacing revenue growth.
• Net new ARR addition at record level, increased +174% YoY.
• Customer additions in Q2 were strong, especially among Commercial customers.

Key Indicators
• Net Dollar Retention (NDR) remains above the SaaS average and rose last quarter to 128%.
• CAC Payback Period stands at 5.6 months, ranking among the best in the SaaS industry.
• The R&D Index (RDI Score) at 3.7 significantly improved and is now one of the best among SaaS peers.

Both the Government (+49% YoY) and Commercial (+47% YoY) segments showed growth acceleration in Q2. The U.S. government grew +53% YoY, while U.S. commercial surged +93% YoY, though international fell -3% YoY. Customer count rose 43% to 849, with strong new additions. Notable deals included an $88M healthcare contract signed one month after boot camp and a telecom increasing its contract 10x since 2022. AIP drove U.S. commercial momentum, with commercial revenue up 93% YoY and record $843M in TCV (+222%).

Management issued a strong outlook for Q3. If Palantir beats its estimate by 5.1% (as it did in Q1), YoY revenue growth could accelerate to +57.5%. Importantly, the Q2 beat of 7.0% was one of the strongest in recent years. Despite rising expectations, the company continues to outperform. Recognition from Forrester, Gartner, IDC, and Dresner Advisory Services cements Palantir as the undisputed leader in enterprise AI platforms.

Execution in Q2 was excellent, but the concern remains valuation, which is still extremely high and reflects already elevated growth expectations. While revenue growth is accelerating, sustaining 40–45% growth at scale will become increasingly challenging, creating risk for investors.

Commercial growth is the most critical driver given the larger market opportunity. While the U.S. Commercial segment is executing strongly, international commercial growth lags — in Q2, international revenue fell -2% YoY. Despite solid new customer additions internationally, this segment continues to raise concerns.

In summary, Palantir is showing remarkable growth momentum, with strong execution, accelerating revenue, and record TCV. However, due to its high valuation - high expectations already priced in, I remain on the sidelines and currently do not hold $PLTR.

Thank you for reading!

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Disclaimer: This earnings review is for informational purposes only and does not constitute financial, investment, or trading advice.