Palantir Nearly Doubled Its Revenue and the Stock Still Dropped

Keypoints:

• Third quarter revenue was $2.31 billion, up 96 percent
• Earnings of 44 cents a share beat estimates of about 41 cents
• Adjusted operating margin hit 62 percent
• Full year revenue guidance was raised to about $8.53 billion
• Shares fell about 3 percent in regular trading and slid more after hours

Palantir reported third quarter results on Monday, and on paper they were great. Revenue came in at $2.31 billion, up 96 percent from a year ago and well above the roughly $2.18 billion analysts expected. Earnings were 44 cents a share against estimates of about 41 cents, and net income was $1.13 billion.

The profitability numbers are the eye catching part. Adjusted operating margin was 62 percent, and the company generated about $1.2 billion in adjusted free cash flow in a single quarter. Management leaned hard on what it calls sovereign AI, meaning governments and large institutions that want AI systems they control, and said it's driving growth on both the commercial and government sides.

Palantir also raised its outlook. It now expects full year revenue of about $8.53 billion and fourth quarter revenue of about $2.65 billion. It lifted its US commercial revenue guidance too, to more than $3.56 billion, which would be growth of at least 143 percent.

So why did the stock drop? Shares fell about 3 percent in regular trading on Monday to around $178, then slid several percent more after the report. The stock trades at a very high valuation, so even a big beat can feel like it's already priced in. 

Spending is also climbing fast. Adjusted expenses rose 53 percent from last year as the company kept investing in its AI platform and hiring, including a fresh class of new grads, and stock based compensation was about $319 million in the quarter. One analysis also pointed to slower growth in AI contract bookings, which worried investors even as headline revenue jumped.

The takeaway is a familiar one for high flying tech stocks. Palantir is growing faster than almost any software company its size and it's very profitable, but when expectations are this high, doing great isn't always enough. Investors will be watching whether the fourth quarter guidance holds up and whether growth stays strong as the base gets bigger.