Palantir Is Down. But We're Boosting Our Price Target
Earnings were solid but the stock is trading lower. Here's why we see this as a temporary glitch.
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Shares of Pro Portfolio holding Palantir Technologies PLTR are moving lower this morning following last night’s earnings report, which contained in-line earnings per share, consensus-topping revenue, and lifted revenue guidance. You may recall we discussed that because of the pronounced move in PLTR shares ahead of that report, market expectations were high, and that any slight miss relative to those expectations would likely send them lower.
That is what we are seeing this morning, even as we and others nudge our PLTR price target higher. Wedbush lifted its target to $140 from $120, and Loop Capital nudged its target to $130 from $125. We are matching that move by Loop to increase our target to $130 from $125. Based on where the shares are trading this morning, that’s not quite enough to warrant upgrading their rating. Given our view Fed Chair Powell will have some market sobering comments tomorrow about rate cuts, we’re inclined to sit tight and let the market absorb Palantir’s earnings report and Powell’s comments before making a next move with PLTR shares.
What’s Weighing on PLTR Shares
While revenue in the quarter soared 39% on a year-over-year basis and 7% sequentially to $884 million, with commercial revenue growing faster than government revenue, Palantir’s adjusted operating margin fell to 44.2% compared to 45.0% in the December quarter. Granted, it was still up meaningfully year over year, but parsing management’s guidance for the current quarter suggests that adjusted operating margin will slip further to around 43%. That explains the market reaction we are seeing in the shares, but it overlooks the telegraphed year-over-year adjusted operating margin increase from 37.4% in the second quarter of 2024.
What’s restricting margin improvement sequentially is the incremental cost tied to higher technical talent and AI production use cases. But the expectation is margins will improve in the second half of 2025, something we can infer based on Palantir’s new 2025 guidance for adjusted operating income of $1.7 billion on $3.9 billion in revenue, up from $1.5 billion and $3.75 billion back in early February.
The driver behind that lifted outlook is traced back to the volume of customer wins and the jump in remaining deal value exiting the quarter:
- Customer count grew 39% year-over-year and 8% quarter-over-quarter
- Palantir closed 139 deals of at least $1 million, 51 deals of at least $5 million, and 31 deals of at least $10 million during the March quarter
- The company booked its highest quarter of U.S. commercial total contract value (TCV) of $810 million, up 183% year-over-year and up from $803 million in the December quarter.
- Exiting the quarter, its U.S. commercial remaining deal value (RDV) stood at $2.32 billion, up 127% year-over-year and up from $1.79 billion in the December quarter.
While some may focus on the softer-than-expected margin, the smarter move is to understand that revised guidance calls for revenue to climb 14% in the second half of 2025 compared to the first half of the year. Also, adjusted operating income is expected to grow at a quicker 16% or higher rate. That means we should see stronger free cash flow in the second half of 2025 as well. That combination is the reason we are nudging our price target higher. We also plan to revisit our target after Palantir holds its next AIPCon event, most likely later this quarter.
Connecting the Dots
Reviewing Palantir’s results indicate several things. First, between Palantir’s results and those from ServiceNow NOW, we can see the government continues to spend with an emphasis on AI, cloud, and productivity. That's despite DOGE-related headlines and fears about government IT spending. These results keep us bullish on PLTR, NOW, and Elastic ESTC shares.
When looking at the vector and velocity of Palantir’s and ServiceNow’s bookings and backlog levels, it is also clear that AI adoption in the commercial space is continuing. We see that adding another dimension of support to the thematic signals we share each month with you. It also explains the spending levels we are seeing by Big Tech on AI and data center capacity, which keeps us positive on Nvidia NVDA and Marvell MRVL shares.
At the time of publication, ESTC, NVDA, MRVL, and PLTR are holdings in the Pro Portfolio.
