One of the biggest hurdles for investors interested in buying Palantir Technologies (NASDAQ: PLTR) stock has been its high valuation. But it can overcome this by continuing to accelerate its revenue growth and grow into that valuation.
While the stock price sank following its Q1 results, the company once again showed accelerated revenue growth in the quarter and raised its revenue outlook for the year. However, with a high valuation comes high expectations, and while it was a very strong report, it wasn't perfect.
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Accelerating revenue growth
The first quarter of 2025 marked the seventh straight time that Palantir has seen its quarterly revenue growth accelerate. During that span, growth increased from 13% in fiscal 2023's Q2 to 39% last quarter. Meanwhile, its Q1 revenue of $883.9 million easily surpassed management's forecast of $858 million to $862 million.
Metric
Q2 '23
Q3 '23
Q4 '24
Q1 '24
Q2 '24
Q3 '24
Q4 '24
Q1 '25
Revenue growth
13%
17%
20%
21%
27%
30%
36%
39%
Source: Palantir quarterly reports.
Palantir's artificial intelligence platform (AIP) continues to be its primary growth driver, particularly with U.S. commercial customers. The company credited AIP's ontology, or the operational layer for AI that connects digital assets (data sets and models) to their real-world counterparts (products or orders).
It said AIP is entering its next phase of production, in which customers can use its platform to create AI agents to help drive enterprise autonomy. It cited examples of insurance giant AIG using AI underwriting agents built on its platform, as well as a hospital, Tampa General, using AI agents to monitor for sepsis. It also noted that customers are starting to expand rapidly, quickly moving on from boot camps or pilots to sign multi-year contracts.
As a result, U.S. commercial revenue soared 71% to $255 million in the quarter. Meanwhile, its U.S. commercial remaining deal value, which refers to revenue it will recognize in the future from contracts already signed, surged 127% to $2.32 billion.
On the government side of its business, revenue climbed 45% year over year to $487 million. U.S. government revenue increased by 45% to $373 million. The company said it remained confident that it was well-positioned to navigate the current federal budget cuts, noting that this should highlight the value of its offerings. Therefore, it expects to garner bigger budget allocations within the Department of Defense and other agencies.
Revenue growth on the international government side also rose 45% to $114 million. The company highlighted its new deal with NATO and its continued work with the U.K. healthcare system.
One weak spot, however, was with international commercial customers. Revenue for this group fell 5% to $141 million. Palantir said it continues to see headwinds in Europe, while it is looking to capitalize on opportunities in Asia and the Middle East. However, its top priority remains the U.S. On its earnings call, when asked about Europe, Palantir said the region "doesn't get AI yet."
Net dollar retention, which measures revenue growth from existing customers that have been with the company for more than a year, was 124%. A number above 100% indicates expansion. This metric was up from 120% last quarter and demonstrates the continued growth the company is having within its existing customer base.
Adjusted earnings per share (EPS), meanwhile, rose from $0.08 to $0.13 year over year. That was only in line with the analyst EPS consensus, as compiled by the London Stock Exchange Group.
Looking ahead, the company guided for full-year 2025 revenue of between $934 million and $938 million, representing growth of 38% at the midpoint. It also raised its full-year revenue guidance, taking it from a range of $3.741 billion to $3.757 billion to a new range of $3.890 billion to $3.902 billion, representing 36% growth.
Is it time to buy the dip?
As noted at the beginning, one of the biggest issues surrounding Palantir is its valuation. The stock trades at a forward price-to-sales (P/S) ratio of 66 times 2025 analyst estimates and just below 52 times 2026 estimates.
That's just a very high valuation. However, if the company can keep growing its revenue at around a 40% clip per year, it can grow into its current multiple. At that rate, it would get to around $15 billion in revenue in 2029 for a P/S multiple of 17 in just over three years. Continue that growth further out, and it would get Palantir close to $30 billion in revenue in 2031, which in around five years would give it a forward P/S multiple of 8.5.
So the recent double-digit percentage dip in the stock could be a buying opportunity, with the caveat that the company must continue its current pace of revenue growth over the next several years. Given how the company has positioned itself as an AI operating system for AI agents, I don't think this scenario is far-fetched. The company has a lot of momentum; now it just needs to keep it.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
