Hook / Thesis
Palantir is no longer the volatile meme conversation it once was; it's behaving like a profitable, margin-rich software company while still sitting at the center of two powerful secular trends: defense/government modernization and enterprise AI adoption. The most recent quarter (ending 09/30/2025) shows the kind of top-line acceleration and cash generation that justify candid attention from long-term growth investors.
We are constructive and present a tactical long trade: enter on strength or a shallow pullback, size the position for volatility, and use a hard stop below a structural support level. The company is delivering profitably today while still having runway to expand in commercial markets - a rare mix in pure-play AI names. That said, Palantir is richly priced by most sensible metrics and requires discipline on sizing and stops.
What Palantir does and why it matters
Palantir provides analytic software - Gotham for government and Foundry for commercial customers - that turns heterogeneous data into decision-ready workflows. The corporate description in filings highlights the central point: Palantir focuses on leveraging data to create efficiency in client organizations, serving both commercial and government customers in Western-allied nations. That positioning matters: governments and regulated enterprises value security, reliability and governance - areas where Palantir has differentiated content, integration and contracting relationships.
Why the market should care: at a time when enterprises are testing large language models and AI stacks, Palantir sells productized, production-ready AI and analytics within existing mission-critical processes. That makes it closer to a high-margin enterprise software vendor than a speculative model-play. The economics in the recent quarter support that view.
What the numbers say - recent financials (from filings)
Key Q3 2025 (period ending 09/30/2025, filing dated 11/04/2025):
- Revenue: $1,181,092,000 for the quarter.
- Gross profit: $973,785,000 (gross margin roughly 82%).
- Operating income: $393,256,000 (operating margin ~33%).
- Net income attributable to parent: $475,599,000 (net margin ~40%).
- Net cash flow from operating activities: $507,664,000 for the quarter; net cash flow reported was $693,592,000.
- Balance sheet: current assets $7,586,156,000; total assets $8,113,960,000; equity $6,688,269,000; total liabilities $1,425,691,000. Noncurrent liabilities are modest (~$245,288,000).
Quarter-to-quarter momentum: revenues advanced from $883.855M (quarter ended 03/31/2025) to $1,003.697M (06/30/2025) to $1,181.092M (09/30/2025) - sequential acceleration consistent with strong demand and monetization progress.
Valuation framing
The dataset does not list a market cap directly. Using the most recent previous close in the market snapshot (prior close 177.75) and the reported diluted average shares for the most recent quarter (2,571,057,000 shares), a simple implied market capitalization estimate is roughly 177.75 * 2,571,057,000 ~ $457 billion (this is an approximation using diluted average shares from the filings; a formal market-cap figure was not present in the dataset and would normally use end-of-day outstanding shares). That implied valuation puts a lot of future expectations into the share price.
Put in perspective: if the company is generating robust operating cash flow (quarterly operating cash flow of $507.7M implies annualized operating cash flow in the low-single-digit billions if sustained), the multiple implied by a >$400B market value is aggressive and reflects strong growth expectations and perceived positioning as an AI infrastructure/application leader. We treat that as a key reason to size positions conservatively and to attach a strict stop-loss discipline.
Catalysts that can drive the trade
- Continued enterprise rollout and large commercial contracts - the sequential revenue acceleration from $883.9M (03/31/2025) to $1,181.1M (09/30/2025) demonstrates traction; further multi-quarter acceleration would re-rate the shares.
- New high-profile commercial deployments and partnerships - the dataset includes news items indicating commercial launches and partnerships (for example, a Palantir-powered platform targeting commercial launch in 2026), which would drive higher commercial revenue and margin expansion.
- Government contract renewals/expansions - Palantir’s defense/government position is sticky and can create persistent high-margin revenue streams.
- Margin expansion and buybacks (if and when management chooses buybacks) - high gross and operating margins leave room for free cash generation to be redeployed to shareholders or to accelerate R&D/market expansion.
Trade idea (actionable)
We recommend a long trade with clear entries, stops and targets. Time horizon: position (6-18 months), with the idea of capturing multiple catalysts and allowing for volatility.
- Entry: scale in around $165 - $180 (current previous close in dataset is $177.75). Add on dips to the $150 - $165 band if liquidity allows.
- Initial target (near-term): $230 (roughly +30% from current levels) - an achievable re-rating if growth and margins hold and commercial momentum accelerates.
- Secondary / stretch target: $300 (stretch, conditional on sustained acceleration and major new commercial wins).
- Stop / risk management: hard stop below $150 on a full-size position (about -15% from entry near $177.75), or a proportional stop if scaled in (e.g., -10% for first tranche). If the share price breaks below $140 on heavy volume, exit and reassess.
- Sizing: because implied valuation is aggressive, limit a full position to a targeted weight (for example no more than 3-5% of total portfolio for risk-tolerant investors); reduce sizes for retail accounts and avoid levering the position.
Risks and counterarguments
Below are the principal risks that could invalidate the thesis. We list at least four meaningful items.
- Valuation risk: even with strong revenue and margins, the implied market capitalization (noted above) demands sustained high growth. A single quarter of slowed growth or a miss could trigger large drawdowns because much is priced into the stock.
- Customer concentration and political dependency: Palantir has deep government contracts and a stated policy of working only with Western-allied entities. If government budgets shift or contract renewals delay, near-term revenue could be impacted. Geopolitical constraints could both help and hinder revenue depending on program timing.
- Competition / commoditization: Large cloud providers and pure-play AI firms are racing up the stack. If customers can replicate critical functionality with cheaper or more standardized LLM-driven tooling, Palantir’s premium could compress.
- Execution risk on commercial expansion: converting proof-of-concept AI deployments into broad enterprise rollouts is hard; the company must both win deals and realize meaningful ARR from deployments.
- Macroeconomic and liquidity shocks: as with most growth tech names, market-wide risk-off episodes can produce outsized share weakness even without company-specific deterioration.
Counterargument: One credible counterargument is that Palantir looks expensive relative to today's revenue and even today’s high margins; if AI value accrues to model and compute providers rather than application-layer integrators, Palantir may retain revenue but lose gross margin and re-rating potential. Additionally, an end to defense spending tailwinds or major contract losses would rapidly change the outlook.
What would change our view
We would become more cautious if we saw any of the following in subsequent filings or reported quarters:
- A clear slowdown in sequential revenue growth versus the run from $883.9M (03/31/2025) -> $1,003.7M (06/30/2025) -> $1,181.1M (09/30/2025).
- Margin erosion: falling gross margin from the current ~82% or operating margin compresses significantly.
- Evidence of losing large government customers or sustained delays in commercial deal conversions.
- Material share count dilution or large equity raises that weaken per-share economics.
Bottom line / conclusion
Palantir enters the second half of the 2020s with real revenue scale, enviable gross margins and meaningful operating cash flow. Those are the pillars you want in a tech investment as rates and macro uncertainty continue to influence valuations. Our view: constructive on the company and tactically long, but only with disciplined sizing and a strict stop because the implied valuation is aggressive and vulnerable to execution or macro risk.
If you're buying, do it sized to your risk tolerance, use the entry bands and stop outlined above, and watch the next two quarters for revenue momentum and margin stability. If Palantir delivers continued sequential growth and demonstrates durable commercial ARR expansion, the higher valuation multiple will be easier to justify. If it does not, the stop will protect capital and force a reassessment.
Disclosure: This is a trade idea for discussion purposes and not personalized investment advice. Use position sizing, stops and independent due diligence before acting.