CEO Alex Karp Just Delivered the News Palantir Stock Investors Have Been Waiting For

When it comes to battleground stocks, Palantir Technologies (PLTR +2.10%) is likely near the top of the list. While bears cite the company’s egregious valuation, bulls point to the company’s accelerating growth.

Investors on both sides of the argument were sitting on the edge of their seats ahead of Palantir’s quarterly report. The results eclipsed expectations, providing evidence that artificial intelligence (AI) adoption continues to gain traction.

Image source: Palantir Technologies.

Blockbuster results

Palantir had a lot riding on its second-quarter financial report, and the data mining and AI specialist delivered on all the metrics that mattered. Revenue of $1.94 billion rose 93% year-over-year — marking the company’s highest ever year over year growth rate — while also rising 19% quarter-over-quarter. Net income clocked in at more than $1 billion for the first time. This fueled adjusted earnings per share (EPS) of $0.41, which surged 156%.

For context, analysts’ consensus estimates called for revenue of $1.81 billion and adjusted EPS of $0.35, so Palantir sailed past Wall Street’s expectations.

The company’s U.S. commercial segment, which includes its flagship Artificial Intelligence Platform (AIP), was the headliner. Revenue for the segment accelerated once again, soaring 149% to $764 million, while rising 28% sequentially, and representing 49% of total revenue. Growth for the U.S. government segment was also stellar, soaring 90% year over year and 18% sequentially to $809 million.

Palantir’s total contract value (TCV) closed during the quarter was $3.37 billion, up 49% year over year. Of that, the U.S. commercial segment reported a record-setting TCV of $2.13 billion, up 153%.

Palantir continues to build for the future. The U.S. commercial segment delivered remaining deal value (RDV) — the value of contracts awaiting fulfillment — which surged 124% year over year and 27% quarter over quarter to $6.24 billion.

Other metrics are equally impressive. The company’s Rule of 40 score — which measures the quality of earnings — rose to 155% — with any number above 40% indicating financial strength and resilience. Palantir also delivered operating cash flow and adjusted free cash flow of $1.2 billion, with a 63% margin.

Palantir’s financial position continued to improve, with cash and equivalents totaling $9.4 billion.

Today’s Change

(2.10%) $2.59

Current Price

$125.65

Key Data Points

Market Cap

$295BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.

Day’s Range

$123.66 – $126.97

52wk Range

$106.37 – $207.52

Volume

75.4M

Avg Vol

41.2M

Gross Margin

84.07%

Finally, management increased its full-year revenue guidance to 82% growth, up from its forecast for 71% growth issued just last quarter. This suggests the company’s growth is far from over.

The valuation remains at the center of a fierce debate, which is understandable. Indeed, Palantir is selling for 142 times earnings — but the most commonly used valuation metrics often fall short when measuring high-growth stocks.

Using the more appropriate price/earnings-to-growth (PEG) ratio — which factors in the company’s phenomenal growth rate — returns a multiple of 0.49, when any number less than 1 is the standard for an undervalued stock. Moreover, the company just reported its 12th consecutive quarter of accelerating revenue growth, with no end in sight.

To be clear, Palantir’s extraordinary growth and lofty valuation have sparked significant volatility, which I don’t expect to abate any time soon. Furthermore, there’s a lot of growth baked into Palantir’s multiple, so any failure to make the grade will likely be met by a re-rating that is both swift and severe. As such, this high-risk, high-reward stock won’t be a fit for every investor. Indeed, only those with a cast-iron constitution need apply.

For those looking to start a position, buying a small stake as part of a balanced portfolio wouldn’t go amiss. There’s also the strategy of gradually dollar-cost averaging into the stock, which is another way to invest in this highflier.

Palantir continues to defy critics by helping enterprises and governments join the AI boom. Given its track record of success, the evidence suggests Palantir stock is a buy.