Palantir Technologies (PLTR)

Data analytics company Palantir Technologies (NASDAQ:PLTR) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 62.8% year on year to $1.18 billion. On top of that, next quarter’s revenue guidance ($1.33 billion at the midpoint) was surprisingly good and 11.2% above what analysts were expecting. Its non-GAAP profit of $0.21 per share was 25.5% above analysts’ consensus estimates.

Company Overview

Named after the all-seeing stones in "Lord of the Rings," Palantir Technologies (NASDAQ:PLTR) develops software platforms that help government agencies and enterprises integrate, analyze, and operationalize their data for decision-making.

Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the siloed data.

Palantir's competitors include large enterprise software providers like Microsoft (NASDAQ:MSFT) and Salesforce (NYSE:CRM), data analytics firms such as Snowflake (NYSE:SNOW) and Databricks (NASDAQ:DBKS), as well as specialized government contractors like Booz Allen Hamilton (NYSE:BAH) and internal software development teams at large organizations.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Palantir Technologies grew its sales at an excellent 31.3% compounded annual growth rate. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within software, a half-decade historical view may miss new innovations or demand cycles. Palantir Technologies’s annualized revenue growth of 35.4% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Palantir Technologies reported magnificent year-on-year revenue growth of 62.8%, and its $1.18 billion of revenue beat Wall Street’s estimates by 8%. Company management is currently guiding for a 60.6% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 35.4% over the next 12 months, similar to its two-year rate. This projection is eye-popping and indicates the market sees success for its products and services.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Palantir Technologies’s billings punched in at $1.12 billion in Q3, and over the last four quarters, its growth was fantastic as it averaged 52.2% year-on-year increases. This alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Palantir Technologies is extremely efficient at acquiring new customers, and its CAC payback period checked in at 9.8 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Palantir Technologies more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

Palantir Technologies’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 80.8% gross margin over the last year. Said differently, roughly $80.81 was left to spend on selling, marketing, and R&D for every $100 in revenue.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Palantir Technologies has seen gross margins improve by 0.9 percentage points over the last 2 year, which is slightly better than average for software.

Palantir Technologies produced a 82.4% gross profit margin in Q3, marking a 2.7 percentage point increase from 79.8% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Palantir Technologies has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 21.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Palantir Technologies’s operating margin rose by 8 percentage points over the last two years, as its sales growth gave it operating leverage.

In Q3, Palantir Technologies generated an operating margin profit margin of 33.3%, up 17.7 percentage points year on year. The increase was solid, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Palantir Technologies has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 51.2% over the last year.

Palantir Technologies’s free cash flow clocked in at $539.9 million in Q3, equivalent to a 45.7% margin. The company’s cash profitability regressed as it was 14.2 percentage points lower than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

Over the next year, analysts predict Palantir Technologies’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 51.2% for the last 12 months will decrease to 45.2%.

Big corporations like Palantir Technologies are attractive to many investors in times of instability thanks to their fortress balance sheets that buffer pockets of soft demand.

Palantir Technologies is a profitable, well-capitalized company with $6.44 billion of cash and $235.4 million of debt on its balance sheet. This $6.20 billion net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Palantir Technologies blew past analysts’ EBITDA expectations this quarter. We were also glad its revenue guidance for next quarter trumped Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock remained flat at $206.80 immediately after reporting.

Updated: December 4, 2025 at 9:17 PM EST

Before deciding whether to buy Palantir Technologies or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Palantir Technologies is one of the best software companies out there. To begin with, its revenue growth was strong over the last five years, and its growth over the next 12 months is expected to accelerate. On top of that, its bountiful generation of free cash flow empowers it to invest in growth initiatives, and its efficient sales strategy allows it to target and onboard new users at scale.

Palantir Technologies’s price-to-sales ratio based on the next 12 months is 77.8x. Expectations are high given its premium multiple, but we’ll happily own Palantir Technologies as its fundamentals illustrate it’s clearly doing something special. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany high valuations.

Wall Street analysts have a consensus one-year price target of $185.76 on the company (compared to the current share price of $177.66).