Palantir reported yet another quarter of record-breaking revenue on Monday as the company continues to expand their customer base commercially and cash in on the enthusiasm for artificial intelligence.
The Denver-based software company posted $1.18 billion in revenue in the quarter that ended in September, growing 62.8% year over year which outpaced analysts estimates of $1.09 billion. Net income came in at $476 million, growing by 219% year over year which also beat analyst’s $259.9 million estimate.
Still, shares fell 7.9% Tuesday to close at $190.74, slipping from a record-high close ahead of the earnings release, as concerns over Palantir’s high sticker price and astronomical forward-looking price to earnings ratio still remain.
“We are observing a new trend where Palantir’s valuation multiple limits market enthusiasm, despite the company’s rapid growth trajectory,” said Marc Giarelli in a research note following the earnings release. “Its ontological framework is a leader in AI but it faces a valuation barrier.”
The majority of Palantir’s sales came from the public sector but its commercial side boasted unprecedented growth and signalled the software company is not only becoming a big player in the government contracting space but is also gaining influence among American enterprises. However, Palantir will have to contend with the “overvalued” label which gives some investors pause moving into the fourth quarter.
Palantir Chief Executive Alex Karp dismissed such discourse as nonsense and spent ample time bashing naysayers and investors who believe the company is too expensive.
“Please turn on the conventional television and see how unhappy those that didn’t invest in us are,” said Karp on Palantir’s earnings call. “Get some popcorn, they’re crying.”
U.S. commercial revenue grew by 121% year over year to $397 million, far exceeding U.S. government revenue growth, which grew by 52% to $486 million. Multimillion dollar deals with enterprises such as Nebraska Medicine to integrate the Artificial Intelligence Platform into its system architectures helped propel Palantir’s private sector performance and separate it from the software pack.
Enterprises are beginning to catch up with the government in making use of Palantir’s tech stack and AI capabilities which has played a key role in clients flocking in droves to contract with them, proving the AIP Bootcamps to be a useful sales tool.
“Our clients realize the choices suck,” said Karp referring to his competitors.
Even though people have been selling, Palantir’s share price is still more than double what it was last year. Their earnings numbers surpassed analyst consensus estimates across the board with the only modest beat being earnings per share, coming in four cents above expectations at $0.21.
The company raised its full-year guidance as it now expects a total year revenue figure between $4.396 and $4.4 billion from its $4.14 billion to $4.15 billion guidance metrics last quarter.
“I just see nothing slowing their momentum down right now,” said Mark Schappel, managing director at Loop Capital Markets. “They’re just way ahead of the pack.”
The strong commercial growth within Palantir, which now works with 530 clients representing a 65% year over year growth rate, coincides with smaller but still significant growth in the public and international sector.
Large contracts with the U.S. Treasury and U.K. military coupled with the European Union’s plan to increase military spending show continued stability in the sector. Palantir also announced a joint AI venture named Aither in partnership with Dubai Holdings the same day as their earnings release, signifying a growing footprint in the Middle East.
Palantir’s trend of immense success is encouraging for a company with high growth and even higher expectations. Investors just seem to be worried whether the stock is worth the price.
“If you are looking for AI, there is not a better company and let alone, I don’t even think there’s an actual comparable,” said Morningstar Equity Analyst Mark Giarelli. “That said, if you’re an investor, what you’re investing in is an extremely high valuation.”