Palantir Beat But Is Trading Down. Here's Why We're Not Worried.
A rising backlog, a growing customer base, and incremental profit margins could drive up EPS expectations — and shift our target price.
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Palantir (PLTR) more than delivered last night against Wall Street expectations for the quarter. The company also guided current expectations higher-than-consensus figures.
Powering Palantir’s outlook is a combination of underlying customer-count growth, rising contract values, and improving margins. To us, that is a powerful trifecta that speaks to rising AI adoption and should translate into larger earnings per share in the coming quarters. For now, we’ll look to maintain our recently increased PLTR price target at $220, but as consensus EPS figures are adjusted, we plan on updating our price-to-earnings-to-growth ratio analysis for the shares, and if needed, tweaking our price target.
The elephant in the room, however, is if Palantir’s results and outlook are that positive, then why are the shares selling off?
To be fair, the shares have had quite a run, and we at the Portfolio have benefited quite well from that, even after our last purchase of shares near $160 back in early September. Had the company delivered results and guidance that left us underwhelmed, we might be inclined to part with some PLTR shares, but it didn’t. Not by a long shot.
Revenue for the quarter soared 63% year over year to $1.18 billion.
The U.S. business grew 77% year over year and 20% sequentially in the September quarter.
The U.S. commercial business grew 121% year over year and 20% sequentially. U.S. commercial customer count grew to 530 customers, reflecting growth of 65% year-over-year and 9% sequentially. Note the faster rate of business growth won, which tells us Palantir is not only growing its customer base, but winning business from them.
U.S. government books were up 52% year over year and 14% sequentially.
Palantir ended the quarter with $8.6 billion in total remaining deal value, an increase of 91% year-over-year and 21% sequentially, and $2.6 billion in the remaining performance obligations (RPOs), an increase of 66% year-over-year and 8% sequentially.
The takeaway from all those figures is that the business is accelerating as companies and other institutions adopt AI and other aspects of Palantir’s solution set.
At the same time, even as its operational expenditures rise to support those wins, Palantir is recognizing operational leverage found in its business, driving further margin expansion. In the September 2025 quarter, the company’s adjusted operating margin hit 51%, up from 38% in the year-ago quarter and 46% in the June 2025 one. Impressive, but even more so when we examine the incremental margins.
What this means is that for every incremental dollar in revenue, the company posted incremental adjusted operating margins of more than 70% in the September quarter. That’s up from 65% in the first half of 2025.
Rising backlog, a growing customer base, and incremental profit margins could drive EPS expectations higher. And that explains why we are seeing folks lift their PLTR price targets this morning.
Some folks may say that, given all the above, Palantir should have delivered a larger September quarter EPS beat than the $0.04 per share beat it did. For context, the market consensus was $0.17 per share, and in the year-ago quarter, Palantir delivered EPS of $0.10. As we see, despite that more than 24% increase in opex to support the business, Palantir more than doubled its September 2025 quarter EPS on revenue that grew 63% year over year. We’re not going to quibble over whether it should have delivered a few pennies more. Instead, we’ll focus on the operational leverage to come as Palantir converts its outstanding contract value into revenue.
We’ve discussed our belief that we are in the 3-4 inning of AI adoption, and how we are closely watching AI adoption and usage levels, and to that we can add trends in backlog, total contract value, and total remaining performance obligation levels at Palantir and other companies. When we see the incremental growth rate for those figures slow considerably, that will be one of our warning flags.
So far, we have yet to see that, especially at Palantir.
We also know that with a beta of 2.60, PLTR shares can swing widely at times, and this is shaping up to be one of them, even though we are seeing multiple price target increases for the shares this morning. Those include ones that are above our new target, landing in the $230-$255 range. It also means we will want to watch the full market reaction near-term and see if support levels first near $186 and then near $176 hold.
At the same time, we will want to see where consensus EPS expectations for 2025, 2026, and 2027 go. Given the backlog and margin discussion above, those figures will move higher, the question for us is how much higher? Based on where those figures land in the next few days, we’ll revisit our $220 price target as needed and subject to where the shares are a the time, potentially our One rating as well.
But here’s the bottom line, putting all the above together, we will want to remain shareholders of Palantir and look to benefit from the company recognizing that operational leverage we discussed above and how it benefits profits and the bottom line. In addition to the larger AI adoption red flags we are watching for, as it relates to Palantir specifically, if we see those wonderful incremental operating margins begin to drop on a sustained basis, it could be time to reconsider PLTR shares' place in the Portfolio.
The Pro Portfolio is long PLTR.
