Palantir released an impressive earnings report for the third quarter on Monday, stating that the results were “crushing consensus expectations.” However, retail investors reacted with indifference on Tuesday, resulting in a slight decline in the stock price. This was attributed to signs of a slowdown in Palantir’s enterprise sales, a key area for growth.
On a positive note for investors, the company reported a remarkable 96% year-over-year revenue increase, reaching $2.31 billion, marking the first occasion it has exceeded the $2 billion threshold. Additionally, revenue rose 20% from the previous quarter, surpassing analysts’ predictions of $2.18 billion. Palantir also disclosed adjusted earnings per share of $0.44, exceeding the anticipated $0.41. Furthermore, the company raised its revenue guidance for the full year, which typically would lead to a surge in stock prices.
A significant milestone was achieved as Palantir’s U.S. commercial revenue outpaced its U.S. government revenue for the first time, reporting $984 million in commercial contracts—an increase of 148% from the same quarter last year—compared to $953 million in government revenue. The surge in enterprise interest can be attributed to the adoption of the company’s AI software, which allows for the secure operation of frontier models and custom training of open-weight models without sharing sensitive data with external AI labs. Additionally, Palantir has consistently provided what is now referred to as “forward-deployed” software engineering, enabling customers to tailor its offerings to their needs.
However, Palantir also indicated a concerning trend: despite the rapid pace at which enterprises are adopting its solutions, many are opting for short-term trials. “What Ryan and I are observing in the commercial sector is a much quicker interaction, faster deployment, and shorter contract durations, but with the potential for significant contract expansions,” CEO Alex Karp stated during the quarterly conference call with Wall Street analysts.
The current landscape of AI in enterprises presents a unique situation. Corporations are eager to experiment with AI software without the usual bureaucratic delays, yet they are also more inclined to terminate contracts. Karp employed several colorful metaphors to express his lack of concern regarding retention of enterprise clients. “We’ve transitioned from being the most appealing individual in the physics department to being the captain of the football team,” he remarked, referring to the influx of potential corporate clients. “Conversely, once you choose Palantir, there’s no turning back, and that’s evident in our numbers.”
Nonetheless, the figures do not yet confirm Palantir’s long-term viability. Although the company secured a substantial $1.46 billion in total contract value from U.S. enterprises during the quarter, this represents a decrease from the record $2.13 billion in enterprise total contract value from the previous quarter, indicating a potential slowdown in sales. The upcoming earnings report will reveal whether Palantir has solidified its position as a leading U.S. enterprise AI provider. Historically, many enterprises finalize their largest technology purchases in the last quarter of the year. Karp and his team remain optimistic, having raised their guidance for U.S. commercial revenue to “in excess of $3.559 billion, representing a growth rate of at least 143%.”
