Palantir Technologies ($PLTR): Update after Q4 results
Introduction
Palantir Technologies has reported a strikingly positive set of financial results, characterized by strong revenue growth, significant commercial traction, and an optimistic outlook for 2025. Right now, Palantir is in a league of its own when it comes to valuation. Let´s dive in to see what that means!
Financial Performance Overview
Palantir’s Q4 2024 results delivered an impressive revenue beat, driven by accelerating demand in AI-powered data analytics solutions. The company recorded 36% total revenue growth year-over-year, significantly outpacing previous quarters. A key highlight was the 134% growth in total contract value for U.S. commercial clients, underlining increasing enterprise adoption of Palantir’s AI Platform (AIP).
Key financial highlights include:
• Q4 revenue growth: 36% year-over-year.
• Government revenue growth: 40%.
• Free cash flow (FCF) forecast for 2025: Raised from $1.44 billion to $1.71 billion.
• Profitability gains: EBIT margins expected to expand from 39.4% in 2024 to 43.7% in 2025.
While the fundamental business performance has improved significantly, these results have pushed Palantir’s stock to 116x forward free cash flow, a valuation that remains exceptionally high even among high-growth technology stocks. I am not gonna lie, this is somewhat difficult to get behind.
Business Segmentation and AI Traction
Palantir’s revenue growth is being fueled by two key verticals:
1. U.S. Commercial Expansion
• Palantir’s commercial revenue surged 64% year-over-year, with major AI-driven contracts.
• The 2025 commercial revenue growth forecast is 54%, indicating continued demand for Palantir’s AI applications.
• The company is well-positioned in the AI and data intelligence sector, competing with Databricks and Snowflake. Competition remains patchy, it is difficult to see who is core competition at a platform level.
2. Government Contracts
• Government revenue grew 40% year-over-year, surpassing estimates of 32%.
• The segment remains highly lucrative, but visibility into future deal flow remains limited.
• The timing of U.S. government deals remains uncertain, with 2025 bookings expected to be weighted toward the second half of the year.
Valuation Analysis: What is going on?
Palantir’s valuation remains a contentious issue. The stock rallied 23% post-earnings, reaching a 151x 2025 FCF multiple, which is at a premium compared to its peer group. Key valuation metrics include:
• Enterprise Value / Free Cash Flow (EV/FCF) multiple for 2025: 121x (compared to industry average of ~46x).
• Revenue Growth-adjusted EV/FCF (EV/FCF/G) multiple: 3.7x, slightly above the high-growth tech sector average of 2.7x.
• Price-to-earnings (P/E) ratio: The stock trades at a forward P/E of 81.6x.
While Palantir’s AI-driven revenue model justifies some valuation premium, the current multiples suggest that much of the growth is already priced in. The stock remains one of the most expensive names in the high-growth software sector.
Comparative Analysis: Palantir vs. AI and Software Peers
A relative comparison of Palantir against leading tech companies provides additional insights into its valuation and growth prospects.
Palantir
Market cap $212 billion
Revenue growth 33%
EV/Revenue 54x
NVIDIA
Market cap $3,180 billion
Revenue growth 56%
EV/Revenue 50x
Snowflake
Market cap $69 billion
Revenue growth 24%
EV/Revenue 15x
Microsoft
Market cap $3,046 billion
Revenue growth 13%
EV/Revenue 10x
The comparison highlights that Palantir’s valuation significantly exceeds its peers, even those with faster growth trajectories like NVIDIA. While its revenue growth remains robust, the high valuation suggests limited room for multiple expansion. The earnings need to develop fast and convincingly, no room for mistakes here.
Free Cash Flow (FCF) and Profitability Trends
Palantir’s FCF is expected to increase from $1.15 billion in 2024 to $1.71 billion in 2025, translating to a 36.7% growth rate. However, the stock’s valuation remains elevated even when viewed through an FCF lens.
• Projected FCF margin for 2025: 42.7% (one of the highest among enterprise software companies).
• EBIT margins expanding: Expected to reach 45.8% by 2026, reflecting strong cost discipline.
• Net cash position: Palantir maintains a robust balance sheet with $6.83 billion in cash and no debt.
These strong cash flow trends reinforce Palantir’s financial stability but do not necessarily justify the extreme valuation multiples.
Key Risks and Considerations
While Palantir’s fundamentals remain strong, several key risks must be considered:
1. Valuation Risk
• At 121x 2025 FCF, the stock remains vulnerable to even minor growth disappointments.
• If growth slows unexpectedly, the valuation premium could rapidly contract.
2. Government Revenue Visibility
• While Palantir has strong government ties, contract visibility remains limited.
• Any delays in deal execution could impact revenue expectations.
3. AI Price Deflation
• AI model costs are falling, and pricing structures may become more competitive.
• Palantir’s pricing model could face downward pressure in a rapidly evolving AI landscape.
4. Competitive Threats
• Databricks and Snowflake continue to gain traction in enterprise AI.
• The data analytics landscape is becoming more crowded, potentially limiting Palantir’s market share expansion.
Investment Outlook: A Balanced Perspective
Palantir presents a compelling growth story, particularly in AI-driven enterprise applications. The company’s strong commercial traction, improving margins, and robust cash flow growth reinforce its fundamental strength. However, the stock’s current valuation leaves little margin for error, everyone would be weighing the downside risks.
Bullish Case
• Continued AI-driven adoption could drive further revenue acceleration.
• Strong free cash flow generation enhances financial stability.
• Commercial segment growth suggests long-term scalability.
Bearish Case
• Excessive valuation multiples make the stock susceptible to correction.
• Limited visibility into government contracts adds uncertainty.
• Competitive pressures could impact long-term pricing power.
Conclusion
Palantir remains a high-growth AI software company with strong financials and expanding profitability. However, its elevated valuation suggests that much of its future success is already priced into the stock. Investors must weigh the company’s strong fundamentals against the risks of multiple compression and increasing competition.
While the stock may continue to perform well in the short term, a more cautious approach is warranted given its stretched valuation. I am cautious in applying a price target here and don’t hold share, but would have all of above in mind before starting a position.
With that, thanks for reading I truly appreciate the interest. Below are a few ideas for further readings and inspirations.
