Palantir Faces Key Red Line After Grand Slam Earnings
The AI firm turned in an outstanding balance sheet and we're sticking with this price target until further notice.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
Former "Stocks Under $10" portfolio and current Sarge-folio core holding Palantir Technologies (PLTR) released the firm's fiscal fourth quarter financial results on Monday evening.
Everyone, say it with me: "All hail Alex Karp. All hail Palantir, the mightiest of them all."
For the three-month period ended December 31, 2025, Palantir posted an adjusted EPS of $0.25 (GAAP EPS: $0.24) on revenue of $1.407 billion. Those top- and bottom-line numbers (both GAAP and adjusted) managed to not just beat Wall Street but reflect sales growth of 69.2%. Most of the rather small adjustment that was made, was made for the purpose of stock-based compensation.
The Rule of 40
For those who do not know what the "growth" stock "rule of 40" is, this is a measure that helps investors determine if a growth company is growing efficiently or being foolish with its cash flows, or if a company moving into profitability is showing the kind of net income it needs to. The formula is very simple:
Revenue growth in percentage terms plus profit margin in percentage terms must be equal to or greater than 40. Yes, 40 is considered outstanding and anything close to 40 is not to be taken lightly.
Now, Read This...
Taken from the press release, CEO Alex Karp commented:
“Palantir’s Rule of 40 score is now an incredible 127%. Last quarter, our U.S. revenue grew 93% year over year, and U.S. commercial revenue grew 137% year over year. We are also announcing a 2026 revenue growth guide of 61% year over year. We are an n of 1, and these numbers prove it. Palantir is alone in choosing to exclusively focus on scaling the operational leverage made possible by the rapid advancements of AI models, a trend that we first called ‘commodity cognition’ well before others started repeating it."
Operations
As revenue grew 69.2%, the cost of that revenue grew 23.7% to $215.966 million. This left a gross profit of $1.191 billion (+82.4%) as gross margin soared from 78.9% to a jaw-dropping 84.7%. GAAP Operating expenses actually decreased by 4.2% to $615.4 million, leaving a GAAP operating income of $575.4 million, up from $11 million (not a misprint). Adjusted operating income grew 57% to $798.5 million.
After accounting for interest, other income and expenses and taxes, GAAP net income attributable to shareholders improved from $76.9 million to $611.6 million. This works out to $0.24 per fully diluted share. After factoring in adjustments, net income attributable to shareholders grew 43% to $608.7 million. That works out to $0.25 per fully diluted share, up from $0.03 for the year-ago comparison.
No Guts, No Glory
For the fourth quarter, Palantir:
- Grew U.S.-based revenue 93% to $1.076 billion
- Grew U.S.-based government revenue 66% to $570 million
- Grew U.S.-based commercial revenue 137% to $507 million
- Closed 180 deals of $1 million or more
- Closed 84 deals of $5 million or more
- Closed 61 deals of $10 million or more
- Closed total contract value of $4.262 billion (+138%)
- U.S. commercial remaining deal value stands at $4.38 billion (+145%)
- Customer count grew 34%
Guidance
For the current quarter, Palantir is projecting revenue of $1.532 billion to $1.536 billion, taking the low end of the range far above the $1.33 billion that Wall Street was looking for. Adjusted operating income is seen at $870 million to $874 million.
For the full year just started, the firm is guiding towards revenue of $7.182 billion to $7.198 billion, which is about two county miles further than the $6.28 billion that Wall Street was "hoping" for. Adjusted operating income is seen at $4.126 billion to $4.142 billion. The firm is also projecting full year free cash flow of $3.925 billion to $4.125 billion.
Fundamentals
For the period reported, Palantir generated operating cash flow of $777.3 million. Out of that number came $13.3 million in capex spending but added to it was $27.4 million in payroll taxes related to stock-based compensation. That left free cash flow of $791.4 million (+53%). The firm does not yet return capital to shareholders.
Turning to the balance sheet, Palantir ended the quarter/year with a cash position of $7.177 billion and current assets of $8.358 billion. Current liabilities add up to $1.176 billion. That includes deferred revenues of $409 million, which are not true financial obligations and no short-term debt. That puts the firm's headline current ratio at 7.11 and its adjusted (for deferred revenue) current ratio of 10.89. For the new kids, a current ratio of 1.0 is considered acceptable. A current ratio of 2.0 is considered to be outstanding.
Total assets amount to $8.9 billion, which is all tangible. There's no baloney in that number. Total liabilities less equity comes to $1.412 billion and yes, this does include a little more deferred revenue and again, there is no longer-term debt. The firm is debt free. Coming from a fellow (me) who analyzes balance sheets every day, this is possibly the strongest balance sheet I know of, not just for a firm of this size, but that I know of.
Opinion
OK. Investors needed Karp to hit a grand slam on Monday night, and he hit an eight-run homer. No doubt about that. Sales are on fire. Profitability is on fire. Cash flows are on fire. The firm is scaling out to the commercial side of the U.S .economy at a simply incredible pace. Oh, and the balance sheet is both pristine and fortress-like. Lastly, I don't know if I would call it a moat, but the competition is so far behind, the race between Nvidia (NVDA) and Advanced Micro Devices (AMD) is closer. Let's go to the chart.
The most important thing for PLTR stock on Tuesday is to take and hold the 200-day SMA at $159.48. The stock takes and holds that line? That would validate the above double-bottom pattern of bullish reversal with the $198 pivot. That's a big "if." Failure could mean that holders of the stock used Tuesday morning's pop to get out of the stock.
Looking at the indicators, relative strength is finally out of the gutter, but the daily MACD has to go a long way before it would be postured any way other than bearish. This day really matters for this stock. For now, I see no reason to adjust my $217 target price. I cannot stress to investors enough the importance of this stock taking back that red line. That would decide a lot for professional money managers and for yours truly.
At the time of publication, Guilfoyle was long PLTR, NVDA and AMD equity.
