Hook / Thesis
Palantir reported another accelerating quarter on 11/04/2025: revenue of $1.181B and operating income of $393M. That combination - high top-line growth plus expanding operating profitability and robust operating cash flow - is the core reason I think the market's fixation on headline P/E ratios misses the point. This is not a pure multiple story; it's a story about converting enterprise AI demand into real cash and profits.
Price reaction has been noisy, but the fundamental read is straightforward: steadily expanding margins and stringing together quarters of accelerating revenue make an earnings multiple look very different than it did a year ago. For traders, that opens a tactical long opportunity with explicit entry, stop and targets and a hard-minded risk framework.
What Palantir does and why investors should care
Palantir builds analytics platforms - Foundry for commercial customers and Gotham for government customers - that turn messy operational data into decision-grade models and workflow software. The product is sticky: it embeds into business processes and (when done well) creates measurable efficiency gains. Recent announcements and customer wins show Palantir is being used in enterprise-scale AI projects (sovereign AI programs, expanded group-wide deals in heavy industry) - the kinds of deals that generate multi-year revenue streams and recurring maintenance/hosting income.
Why the market should care: AI adoption at enterprise scale isn't free or instant. Successful large-scale deployments require integrations, engineering effort and a multi-year commitment from customers - exactly the environment where Palantir's platforms and services have an edge. That turns high-growth revenue today into predictable, high-margin streams tomorrow - if Palantir executes.
Supporting data from recent results
- Revenue acceleration: Q3 FY2025 revenue was $1,181,092,000 (filed 11/04/2025). That follows Q2 revenue of $1,003,697,000 and Q1 revenue of $883,855,000 - sequential growth of ~17.7% from Q2 to Q3 and ~13.6% from Q1 to Q2. Versus Q3 FY2024 revenue of $725,516,000, Q3 FY2025 represents roughly a 63% year-over-year gain.
- Margins and profitability: Q3 gross profit was $973,785,000 on cost of revenue $207,307,000, implying gross margins in the low-80% range for the quarter. Operating income in Q3 was $393,256,000 and net income attributable to the parent was $475,599,000.
- Cash generation & liquidity: Net cash flow from operating activities in Q3 was $507,664,000. The balance sheet shows $7.586B in current assets against $1.180B in current liabilities, implying a very healthy near-term liquidity position and optionality to invest behind growth or continue strategic hiring.
Put plainly: Palantir is growing revenue quickly, converting that revenue to operating profit, and generating sizable operating cash flow in the quarter. For companies that can scale that pattern, headline multiples are less informative than the rate of cash-flow and margin expansion.
Valuation framing - why P/E ratios can be misleading here
The stock has rallied hard: after trading in the low double-digits a year ago it sits near $169 (last quotes around $169.30; previous close $165.33) as of 01/22/2026. A raw P/E using a single-quarter EPS or a lagging annual EPS headline can make the stock look expensive. But earnings are growing rapidly - diluted EPS in the most recent quarter was $0.18 with quarter-to-quarter increases (Q1 diluted EPS $0.08; Q2 $0.13; Q3 $0.18). That progression implies rapidly rising per-share earnings; a static P/E misses the slope of earnings improvement.
Also important: the company is converting revenue into cash. Operating cash flow for recent quarters is large relative to the incremental investment required for growth, which supports the thesis that earnings will compound at a double-digit pace if management maintains execution and new enterprise deployments scale.
Because a true forward multiple would need a reliable forward EPS estimate, and because four-quarter trailing numbers are still catching up to the new revenue base, I prefer to think in terms of growth-adjusted valuation - essentially asking whether current price reflects 2-3 years of high-single/low-double-digit earnings compounding. Given the current trend in revenue, margins and operating cash flow, the answer is: it can, but only if execution continues.
Catalysts that could drive the trade
- Large commercial expansion wins - multi-year, group-wide deployments (e.g., recent expanded deals in manufacturing/refining) that convert to recurring Foundry revenue and professional services.
- New sovereign and government AI programs where Palantir is a primary platform supplier - these tend to be higher-visibility, multi-year contracts.
- Continued improvement in operating margins as fixed costs are leveraged over a bigger revenue base, translating to faster EPS growth than the headline P/E implies.
- Positive forward guidance or better-structured enterprise contracting that increases visibility into multi-year revenue.
Trade idea (actionable)
Thesis: Buy into continued revenue acceleration and margin expansion. This is a tactical swing trade—not a buy-and-forget position—because the stock can be volatile around headline news.
| Entry | Stop | Near Target | Extended Target | Position Size Guidance |
|---|---|---|---|---|
| $162 - $172 (prefer scale-in near $165) | $145 (strict; exit if price closes below) | $200 (take partial profits) | $230 (ride remainder with trailing stop) | Small-to-moderate: 2-4% of portfolio capital (high volatility stock) |
Rationale: entry band reflects recent price action and allows a disciplined scale-in. The $145 stop limits downside to roughly 12-15% from current levels and sits beneath meaningful prior support. Targets reflect logical resistance and reward-to-risk; reaching $200 implies ~18-20% upside from entry near $168 and achieves a tidy partial exit.
Risks and counterarguments
- Valuation paralysis: If investors re-price AI/software names aggressively lower, multiples can compress quickly even with good underlying growth. This trade accepts that risk and uses a strict stop.
- Deal concentration / execution risk: Large enterprise or government deals can be lumpy. A delayed or underperforming big contract could slow bookings and drag sentiment.
- Macro / risk-off shocks: A market-wide de-risking episode could send high-multiple names lower regardless of company fundamentals, producing outsized drawdowns.
- Competitive & policy risk: Palantir operates in a sensitive space; policy shifts around sovereign AI, procurement rules or data privacy could affect contract timing or scope.
Counterargument: The simplest pushback is P/E math - at a high absolute share price the stock can look expensive on any static earnings measure. If earnings growth slows below current trends, or if customers shift to cheaper open-source stacks and reduce incremental spending, multiples could quickly re-rate. That is why I keep a hard stop and treat this as a trade rather than a long-term conviction without monitoring.
What would change my mind
I would pull back from this bullish stance if I saw any of the following: a sustained drop in sequential revenue growth (two consecutive quarters of negative sequential growth), a meaningful widening of operating losses versus the last reported quarter, or a marked slowdown in operating cash flow conversion. Conversely, an acceleration in multi-year contract disclosures or guidance materially above consensus would push me from swing trade to longer-term buyer.
Conclusion
Palantir's recent quarter (filed 11/04/2025) checks the boxes I want to see: accelerating revenue, stronger operating income and meaningful operating cash flow. Those are real fundamentals, not vanity metrics. That does not mean the stock is a free pass; multiples remain elevated and sentiment can swing fast. For traders willing to accept higher volatility, a disciplined long with a $145 stop and clear profit exits at $200/$230 offers a compelling asymmetric trade: you own growth and cash generation while capping headline-risk with an explicit stop.
Disclosure: This is a tactical trade idea focused on a swing horizon. Manage position sizing and use the stop described; your risk tolerance may differ.