Palantir reported fourth quarter revenue of $828mn ($776mn expected), up 36% year-over-year and 14% quarter-over-quarter. Performance was driven by further acceleration in its US businesses, both commercial and government.
Underlying operating income rose 78% to $373mn, not including $361mn of charges relating to stock-based compensation (2023: $144mn). Underlying free cash flow rose 70% to $517mn and net cash, including leases, was £5.0bn at the year end.
For the coming quarter, Palantir expects revenue to land between $858-$862mn ($799mn expected), with underlying operating income of $354-$358mn. For the full year, revenue is expected between $3.7-$3.8bn ($3.5bn expected), with underlying operating income of around $1.6bn.
The shares were up 16.8% in pre-market trading.
Our view
Palantir’s knockout fourth quarter results further demonstrate its market leading position in the AI-value chain.
Palantir builds software to help businesses and government agencies (primarily in the US) analyse data and make better decisions using artificial intelligence (AI). It has two main platforms: Gotham, which helps government agencies like the military and police, and Foundry, which is used by businesses in healthcare, finance, and other industries.
Palantir’s software gathers and organizes large amounts of data, making it easier to find patterns and predict future trends. One of its key features is what it calls the ‘ontology framework’, which connects different pieces of information to uncover hidden relationships. This helps organizations improve efficiency and make smarter decisions.
AI has helped Palantir significantly improve the value of its product, and its new AI Platform enables the integration of large language models into its existing Gotham and Foundry platforms. Once customers are ensnared in the Palantir world, it’s very hard to give up the data insights and get out of its web, making revenue very sticky.
Palantir has made significant strides with bootcamps, in a similar fashion to Salesforce, to act as touch points with clients where it can demonstrate the value of its product. But it’s not always easy to win big contracts as a data analysis business, the sales process can be long and complicated.
Moving to the fundamentals. Revenue growth has been impressive, at 36% over 2024 and has grown at an even faster pace in the US. It’s hard to fault the execution, there are 73% more US commercial customers than a year ago and revenue growth from US government contracts is still impressive, with the potential for a near term tailwind as the Tump administration looks to find ways to improve efficiency.
Now to the elephant in the room, the valuation. There’s a valid argument that traditional metrics go out the window when companies are redefining their addressable markets. But even so, some caution is warranted. Profits need to significantly, and consistently, outperform current consensus to justify the valuation. Not an impossible feat, but a challenge to be wary of.
All in, Palantir is positioning itself as a leader in terms of using data and AI to deliver real world benefits to both government agencies and private companies. But the sky-high valuation means we see potential for significant volatility especially over the short term.
Environmental, social and governance (ESG) risks
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, the company's overall management of material ESG issues is average.
The company’s executive pay isn’t tied to ESG targets, and its board committee only oversees governance. It also lacks an environmental policy and recent ESG reports, but it does have a whistleblower program in place. Palantir’s three co-founders have control over the company through a complex share structure, this reduces the impact that ordinary shareholders can have and is a risk to note.
Palantir key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is not advice or a recommendation to buy, sell or hold any investment.No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.Non - independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place(including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing.Please see our full non - independent research disclosure for more information.