Palantir posted another strong quarter with revenue of $1.63 billion, representing growth of 85% YoY and 16% QoQ. The company continues to accelerate across many key metrics, including net retention rate, Rule of 40 soared to 145 and RPO also came in strong. The adjusted gross margin has expanded to 88%, the operating margin has expanded to 60% and the free cash flow margin to 57%. This remark helps to illustrate how fundamentally strong the company is “Our free cash flow this quarter is larger than our revenue a year ago in the same quarter.” 

Overall, you will find little fault with the company’s headline numbers. In fact, the company’s guidance for U.S. Commercial to be in excess of $3.2 billion for growth of more than 120% implies Palantir maintains a QoQ growth rate between 22% and 24% for the next three quarters. If it materializes, this growth rate will help maintain Palantir’s standing as one of the strongest AI software companies that we track.  

Notably, there was a timing issue which created a softer total contract value (TCV) metric. TCV Booked was down (43%) QoQ, leaving TCV of $2.41 billion – which is still flat to minimal growth over three quarters (more on this below). Last year, we did not see this flat growth over a 6-month period in TCV booked, instead there was an upward trajectory of roughly 50% growth over that 6-month period.  

Additionally, both RPO and Remaining Deal Value (RDV) are growing at a slower pace than revenue growth at 9% QoQ and 6% QoQ, respectively. Typically, it’s better when both RPO and RDV are higher than revenue growth. That may sound nitpicky, but when a company is priced to perfection, subtle shifts in forward indicators matter. My role is to highlight both the opportunity and the risk beneath the surface. Consider that done in the analysis below. 

NRR Expands 11 Points to 150%, but TCV Soft 

Palantir reported its largest sequential increase in NRR since this key metric began inflecting back in late 2023, with Q1 seeing an 11 point expansion to the coveted 150% level. AIP (and US Commercial) is likely the core driver behind Palantir’s ten-quarter NRR expansion, as customers are increasingly expanding usage of the platform. It’s also worth noting that Palantir is in a league of its own when it comes to NRR, as other best-of-breed names like Snowflake have seen NRR flatline at 125% for the last three quarters.  

This sharp sequential uptick in NRR suggests that Palantir’s customers are increasingly expanding AIP usage at a faster rate, laying the groundwork for both overall revenue and US commercial revenue growth to remain at these elevated levels for a longer period. It also signals a higher degree of stickiness for Palantir in a time where the market is growing fatigued with software and threats of AI disruption, as the company can offer something beyond just workflow automation.  

NRR does not include revenue from new customers acquired over the last twelve months, and Palantir’s deal velocity in late 2025 and in Q1 supports continued upside to NRR in 2026, as many of Palantir’s larger deals closed (those >$5M and >$10M) begin to contribute. 

Looking more closely at deal counts below, Palantir has signed 747 deals over the last twelve months, with 203 of those deals worth >$10 million; none of these have yet to appear in NRR. When considering that NRR has yet to see impacts from the prior few quarters with >180 total deals and more than 40 >$10 million, and instead is only reflecting quarters with <150 deals and ~30 >$10 million deals, there is ample evidence supporting continued strength and upside in NRR as these customers begin to expand through 2026 and 2027. Should NRR follow the acceleration in deals into Q3, there is potential for NRR to begin approaching or exceeding 160%.  

On the flip side, Palantir’s TCV was a bit soft in Q1 with TCV booked showing a sharp deceleration on a YoY growth basis as well as a sharp (43%) QoQ decline. This is not necessarily an immediate red-flag for Palantir’s growth story, as there is an element of seasonality mixed in with a $1.3 billion impact last quarter tied to long-term International contracts. However, the decline does signal that there could be trouble ahead if TCV numbers do not begin to materially rebound next quarter.  

Total TCV booked grew 61% YoY to $2.41 billion, a sharp deceleration from 138% YoY growth in Q4 and >138% growth in the prior three quarters. The bigger issue at play for Palantir is that despite the deal momentum witnessed since Q3, when the company first vaulted from the 150-range to 200, TCV booked has been essentially flat to down (when stripping out Q4’s International impact).  

The fact of the matter is, TCV should have a smooth path to sequential growth, as had been the case in Q1 2025 with TCV of $1.5 billion versus Q2/Q3 2024’s $950 million to $1.1 billion, considering deals have moved much higher with a larger number of >$10 million deals. 

US Commercial TCV was also soft at $1.176 billion, with YoY growth decelerating 22 points to 45% YoY. Sequentially, US Commercial TCV declined roughly (9.5%) QoQ, the segment’s first sequential decline since Q2 2024, despite quarterly deals signed moving to a record high this quarter. This could be due to a higher mix of $1M-$5M deals this quarter, accounting for 65% of total deals this quarter, up from 53% in Q4.  

The Death of Legacy Software 

Software stocks have sold off recently from the threat of AI disruption. What makes Palantir worth listening to on this topic is that the company’s approach is to not simply offer workflow automation (what management is referring to as “slop” on the call), but rather, to offer a way of organizing complex enterprise data into ontologies. Underneath this fundamental difference is a company that first solved the data problem for industries that other software companies ignored – such as defense agencies, manufacturers, hospitals and banks. According to management on the call tonight, it was by solving some of the hardest data problems in those industries that carved out Palantir’s leadership in AI, especially true as agentic AI requires a strong data layer.

Most companies that Palantir competes with build software on top of existing, legacy databases. We’ve discussed this in many previous analyses, stating “The differences matter as unlike traditional AI-enabled database or business intelligence competitors, Palantir can operate effectively even when data sets are incomplete or fragmented—situations where most models struggle. In that regard, traditional business intelligence companies require a complete data set, whereas Palantir can handle situations where one isn't available. You can think of the competitive advantage as actionable depth, as Palantir has described it: “the reasoning that goes into decision-making, not just data.”

Palantir took this further to discuss why cheaper inference places more emphasis on the underlying structural problem that competitors face. Essentially, as large language models improve, as models converge, and as “tokens drop precipitously” to where tokens are now 1000X cheaper, the need for AI agents grows exponentially. According to Palantir, companies have very few choices if they want to deploy AI agents at scale that can reason against data autonomously.

The point here is that investors should understand why software is struggling in the AI era; which is the gap between what Palantir provides compared to what legacy software provides, is not inherently a software issue. If it were a software issue, it could be easily resolved through a faster product cycle, a bigger budget or more software engineering, but it cannot (according to Palantir) because it's inherently a database issue.

Here is what was stated on the call:

“For over 2 years now, we've been saying that while LLMs are improving, models are converging and the cost per token continues to drop precipitously. GPT-4 equivalent performance that cost $20 per million tokens in early 2023 is now approximately 1,000x cheaper 3 years later. Because of this increased efficiency, use case demand for tokens is exploding. Our AIP workflows today utilize vastly more tokens, agents orchestrating across the ontology, training, reasoning, pool use, retrieval and execution, and it's growing […] For every agent action, our customers need to answer 3 questions: Who authorized this? What did it cost? Can I trust what it did? These questions need exact answers with precision. There's no tolerance for slop. We're building a platform-native agent engine SDK, a single set of primatives we're building, persisting, governing and operating ontology native agents, a common layer that lets you visualize every agent in your enterprise and control it, regardless of how it was built, a true agent operating system.”

Financials  

Revenue Accelerates 15 Points to Record-High 85% YoY, Up 16% QoQ 

Palantir reported $1.633 billion in revenue in Q1 2026, up 16% QoQ and beating estimates by 5.8%, driven by an extraordinary surge in both US Commercial and US Government. On a YoY basis, revenue growth accelerated 15 points to 85% YoY, the company's highest growth rate since going public and the eleventh consecutive quarter of acceleration. Over the last eleven quarters, topline growth has compounded roughly 72 points, from just 12.7% in Q2 2023, an achievement matched by virtually no other enterprise software company.  

For Q2 2026, Palantir guided for revenue of $1.797 to $1.801 billion, implying 79.1% YoY growth at the midpoint and 10.2% QoQ growth, once again well ahead of prior consensus for $1.68 billion for 67.5% growth. This represents a sequential deceleration at face value, though at this scale and against a steepening compare base, the magnitude of absolute dollar growth remains exceptional.  

For the full year, Palantir raised its revenue outlook to $7.650 to $7.662 billion, representing 71.1% YoY growth at the midpoint, a 10-point upgrade from the $7.182–7.198 billion guidance issued just last quarter for 61% growth. Going back to our Q4 analysis, Palantir Q4: Highest Growth as Public Company; US Commercial to Accelerate, we had covered what Palantir’s historical beat-and-raise patterns implied for 2026 growth, noting that 2025 had ended more than 25 points higher than initial growth guidance. A similar pattern in 2026 would see Palantir exit the year at ~86% YoY, requiring a slight acceleration into Q2 and maintaining that pace through year-end. 

US Commercial Surges to 133% YoY, Guidance Raised to >120% 

Palantir's US Commercial segment delivered its third consecutive quarter of triple-digit YoY growth, with revenue up 133% YoY and 18% QoQ to $595 million in Q1. Since the start of 2025, US Commercial growth has accelerated 62 points; since the start of 2024, it has accelerated 93 points.  

For the full year, Palantir raised its US Commercial revenue guidance to in excess of $3.224 billion, representing growth of at least 120% YoY—a further upgrade from the prior guidance of >$3.144 billion representing >115% growth set last quarter. Raising full-year growth by five points this early into the year reflects confidence in strong demand persisting, even in light of a marginal YoY deceleration, as well as elevated visibility through year-end.  

A sample model for U.S. Commercial revenue would be the following, if we assume Palantir comes in 3.6% above the guide: 

• $595M this quarter for 18% QoQ growth (actual) 
• $740M next quarter for 24% growth (est) 
• $905M for Q3 for 22% growth (est) 
• $1.1B for Q4 for 22% growth (est) 

Management did share there was a customer that moved from Commercial to Government, which had the customer not moved, would have led to 143% YoY growth and 22% QoQ growth in Commercial. 

Key metrics for the segment remained strong. US Commercial TCV closed was $1.18 billion, up 45% YoY, while remaining deal value (RDV) stood at $4.92 billion, up 112% YoY and 12% QoQ. Palantir closed 206 deals of at least $1 million, 72 of which were at least $5 million, and 47 of which were at least $10 million across the company. 

To touch on International Commercial, revenue was $179 million as growth inflected on a YoY basis, accelerating from 8% in Q4 to 27% YoY in Q1; however, sequential growth slowed seven points, from 12% QoQ in Q4 to 5% QoQ in Q1.   

Government Accelerates Sharply Alongside US Commercial 

Government still remains critical to Palantir’s success despite its robust US commercial momentum, as government accounted for more than 52% of revenue in Q1. To further hammer this point home, US government revenue also outpaced US commercial growth on a sequential basis this quarter at a larger scale, up nearly 21% QoQ to $687 million.

Similar to US Commercial, Palantir’s US Government revenue accelerated 18 points to 84% YoY, driving total government revenue up 76% YoY to $858 million, driven by Palantir's deepening entrenchment across military and intelligence workflows. 

International Government revenue was $171 million, up 50% YoY and 7% QoQ, a slight acceleration from 43% YoY and 9% QoQ in Q4.

Margins – Rule of 40 Soars to 145%, Adjusted Operating Margin Hits 60% 

Margins strengthened dramatically in Q1 2026, with Palantir setting a new benchmark for the combination of growth and profitability. Palantir’s Rule of 40 score (revenue growth rate plus adjusted operating margin) reached 145%, surpassing Q4 2025's record 127%, arguably the most elite margin-and-growth profile of any enterprise software company. 

Gross margin expanded to 86.8% in Q1, up two points QoQ from 84.6% in Q4 2025 and continuing its multi-quarter uptrend.  

GAAP operating margin was 46.2%, an expansion of roughly 13 points QoQ and over 26 points YoY, as operating leverage scaled impressively against accelerating revenue. Adjusted operating margin was 60%, beating guidance of 56.8% at the midpoint by approximately 320 basis points and expanding 3 points from Q4 2025's 57% actual result.  

For the full year, Palantir raised its adjusted income from operations guidance to $4.440–$4.452 billion, implying a full-year adjusted operating margin of approximately 58.1% at the midpoint—up from the prior $4.126–$4.142 billion guidance for a 57.5% margin. 

GAAP net margin was 53.3%, up roughly 10 points QoQ and over 29 points YoY—a remarkable achievement for a company growing revenue at 85%. Adjusted net margin was 52.5%. Stock-based compensation was $201.6 million, or 12.3% of revenue, a continued improvement from 14.0% in Q4 2025 and 17.6% in Q1 2025, reflecting growing revenue leverage over fixed equity costs. 

Earnings 

Palantir reported $0.34 in GAAP EPS in the quarter, beating estimates of $0.24 by 33.3%, while adjusted EPS was $0.33, beating estimates of $0.28 by 17.9% and representing a 154% YoY increase from $0.13 in Q1 2025. 

Palantir did not provide specific EPS guidance for Q2 2026; prior consensus had pegged adjusted EPS at approximately $0.28 for the quarter, which may see upward revisions following the Q1 beat and raised annual guidance. For FY2026, consensus had been tracking approximately $1.32 in adjusted EPS as of early May, though the Q1 beat suggests those estimates are likely to increase. 

Cash Flows and Balance Sheet

Cash flows were exceptionally strong with Palantir maintaining mid-50% margins for both operating and adjusted free cash flow.  

Operating cash flow was $899.2 million for a 55.1% margin, roughly flat with Q4 2025's 55.0% margin and materially above Q1 2025's 35.1% margin.  

Adjusted free cash flow was $924.6 million for a 56.6% margin, marginally higher from 56.0% in Q4 2025 and a notable expansion from 42.0% in Q1 2025. For the full year, Palantir raised its adjusted free cash flow guidance to $4.2–$4.4 billion, an increase from the prior $3.925–$4.125 billion range; this represents a 56.2% margin with the updated revenue guide, up from a 56% margin previously.  

Cash, cash equivalents, and short-term Treasury securities totaled $8.03 billion at quarter-end, up from $7.18 billion at the end of Q4 2025. Debt remains zero. 

Conclusion: 

By most measures, Palantir offered a strong quarter. Revenue accelerated for the sixth consecutive quarter to 85% YoY growth while most software companies today are treading water. The adjusted operating margin expanded to 60%, FCF margin increased to 57% and key metrics like the Rule of 40 reached 145% to where Palantir is now hanging with memory stocks in terms of growth combined with margins.

It’s well-known that Palantir is not priced cheap, and thus, forward-looking metrics like total contract value or slowing QoQ RDV growth can often help determine if there will be a re-rating higher or lower. Ideally, bookings would accelerate in lockstep with revenue. U.S. Commercial TCV bookings in the $1.2B to $1.3B range for three quarters does not offer the same upward trajectory we saw last year.

The likelihood Palantir joins the legacy software graveyard is very low. However, when a stock is priced for perfect execution, even temporary softening in forward-looking key metrics matter. Regardless, with the information we have today, the rare blemish in Palantir’s earnings report is not enough to prevent the company from putting up a beat/raise early in the year with an enviable bottom line.

We will use technicals on this stock only because of the valuation while the fundamentals are on a tight leash due to the very subtle decline in key metrics.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in PLTR at the time of writing and may own stocks pictured in the charts.

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When thinking of strong earnings reports this past quarter, Astera Labs and AppLovin come to mind in terms of ticking critical boxes on fundamentals. However, one could argue that Palantir is tied for the top position on this list, although with Palantir, you pay for what you get with a valuation that is as outrageous as its CEO. 

The company continues to report accelerating growth on a QoQ and YoY basis. The cherry on top is that fiscal year guidance was raised, and key metrics support continued growth down the line.  

In Q1, the company reported $884 million in revenue for growth of 39%, up from growth of 36% last quarter and 21% last year. This represents QoQ growth of 7%. Perhaps most importantly, US commercial revenue drove the results, with 71% YoY growth and QoQ growth of 19% for the segment’s first-ever $1 billion annual run rate.  

Key metrics such as commercial total contract value (TCV), US commercial customer count, US commercial remaining deal value (RDV) and RPO are supportive of continued growth in future quarters.  

There are also robust cash flows and expanding margins to strengthen the story. What is this Perfect 10 worth? The market clearly loves this stock despite its 83 forward PS valuation; therefore, given Palantir’s ongoing invincibility, it’s truly anyone’s guess if the stock can sustain the valuation or not.  

Background on Palantir’s Platforms 

Palantir’s first platform was Gotham for government purposes before many of the integrated features were expanding to Foundry, which launched around 2021 for Commerical purposes (exact date is not available but generally understood to be around this time).  

Gotham and Foundry create a unified data set for actionable insights across industries such as manufacturing, product development, and customer experience. The data that Palantir gets is from the customer database although the company may use other data sets for government customers, such as scraping social media or other publicly available information on the web. The traditional deployment includes hosting Palantir’s servers in a customer’s data center. 

The difference between Palantir and other AI-enabled database competitors is that Palantir is able to answer questions a model cannot answer. Traditional business intelligence companies require a complete data set whereas Palantir is able to tackle situations where there is not a complete data set. You can think of the competitive advantage as being actionable depth, which Palantir has described as “the reasoning that goes into decision-making, not just data.”  

The core platforms were built for the “ability to construct a model of the real world from countless data points.” Unlike a SQL database, natural language is used to query data and return results in real-time rather than through strings.  

Gotham:  

Palantir Gotham was the company’s first platform, built for government operatives in defense and intelligence sectors. The platform enables users to identify patterns hidden deep within datasets using semantic, temporal, geospatial and full-text analysis.  

Here are some ways the platform is used: 

• Graph application allows data objects to be seen as nodes and edges for the ability to visualize events, filter objects and plot characteristics 
• Object explorer allows users to query billions of objects, somewhat similar to Apache Spark 
• Browser allows perform search queries and surface information  

Pictured Above: Gotham uses AI detection models 

Pictured Above: Gotham uses ML models to detect objects and event matches acrsos varying sensor data types, satellite images, audio, text and video.  

Foundry: 

Palantir Foundry is the commercial offering and has four layers of tooling: Foundry Core, Data Foundation, Ontology and Workflows. This four-step process does the following, with the Ontology layer offering a distinct, competitive advantage: 

• brings volumes of data into one place 
• transforms the data into a format that analysts can work with and enables validation in any number of programming languages 
• the “ontology layer” allows datasets to be turned into real-world concepts with the ability to accelerate on the company’s core ontology to reduce redundancy 
• workflows is where it all comes together in an integrated environment for object exploration, point-and-click top-down analysis, code authoring, time series analysis, data science and application development. When a user has a question, it answers it using all layers and tools available

Pictured: Workflow builder on AIP platform 

Pictured Above: AI-powered Shipments and Supply Chains using AIP platform 

Apollo: 

The Apollo layer provides continuous delivery and an automated configuration layer that allows Foundry and Gotham to work across all cloud environments and also in places where there is little to no connectivity. On top of Palantir being able to form conclusions from incomplete data sets, the company can also deploy its platform and applications anywhere. 

Palantir’s marketing team says Apollo “goes where no SaaS has gone before” because it allows what is done on-premise to also run on multi-cloud SaaS with code that is deployed across all environments rather than written for a specific environment. The orchestration allows for on-hardware AI models to consume real-time data from sensors, radio, geo-data and time series data.  

Where bandwidth is not an issue, the company transmits all raw inputs and enriched metadata from models. Where there are constraints, the platform transmits meta-data only which can reduce bitrate by 20X. At times, a simulated environment can be created with Palantir’s Edge AI from historical data to help train AI models. The simulated environment is then deployed at the edge. With Apollo, Palantir’s centralized operations team is capable of 41,000 updates per week at no additional cost. 

Apollo Edge AI links together satellites to lower latency for the AI-enabled decision chain by orchestrating up to 237 satellites in what the company is calling a “meta-constellation.” This meta-constellation optimizes hundreds of orbital sensors and AI models to power Palantir’s models. One example is tracking submarines that pose a threat to the U.S. and its allies. In this case, submarines are being tracked on a granular level in areas where there is no bandwidth available. These are the kinds of obstacles that Palantir overcomes while being independent of one cloud environment, such as AWS or Azure. 

AIP: 

The Artificial Intelligence Platform has helped the stock surge in recent years as it integrates generative AI with operational data and workflows. When AIP is combined with Foundry and Apollo, it provides an AI service mesh that can run hundreds of microservices, scale compute through its Rubix engine and orchestrate updates through Apollo. Similar to Apollo, AIP Is independent from any one cloud environment.  

AIP Ontology is what Separates Palantir: 

The knowledge graph referred to as Ontology is a distinct advantage. The graph offers better context than a large language model would on its own – or as Palantir states, it’s “the reasoning that goes into decision-making.” 

You will often hear the management team state large language models will become commoditized, which is a way of saying the software that is on top of the LLM is where value creation comes from rather than the LLM alone. For this reason, AIP is designed to not only be cloud agnostic but to also be LLM-agnostic as it works with any large language model – for example, OpenAI, Anthropic, Meta’s Llama, etc. 

The platform also offers an AI agent workflows for building AI agents that are further optimized for specific use cases and customized through additional tools. Autonomous agents can be built and tested on the platform.  

When it comes to security and governance, Palantir’s roots in government contracts means the software company is exceptional compared to peers in this area.

Palantir Reports Accelerating Growth YoY and QoQ, Raises FY Guidance 

Palantir reported $883.9 million in revenue in Q1, beating estimates by more than $21 million. As stated above, this represents growth of 39%, up from growth of 36% last quarter and up from 21% last year. On a QoQ basis, Q1 accelerated 7% from Q4. This is an impressive performance given Q1 is typically one of the slowest quarters seasonally. For Q2, Palantir guided for $934 to $938 million in revenue, or 38% YoY growth. 

Over the past seven quarters, revenue growth has accelerated nearly 27 points, an exceptional feat driven by reaccelerating government growth, persisting AI momentum in US commercial, and strong execution.  

Driven by the strong Q1 report and upbeat Q2 guide, Palantir hiked its full-year revenue growth forecast by 5 points, a rather high-conviction move after just one quarter. Palantir now sees FY25 revenue of $3.89 to $3.902 billion for 35.9% YoY growth, a significant ~$150 million raise from its prior view for $3.741 to $3.757 billion for 30.9% YoY growth.  

With that said, the updated FY25 guidance also suggests that revenue growth may begin to moderate in the back half of the year, given 1H growth is in the mid-38% range. There was a hint in the call that government could be lumpy, thus it’s likely to be the cause for H2 being slightly lower than H1. The other possibility for H2 being forecast to report slower growth would be Europe or other global weakness, which was present in this report. 

Key Segments: US Commercial Revenue Growth Drives Results 

US Commercial drove the results this quarter although Global Commercial was still at a lower growth rate than Government due to weakness in Europe. It’s clear to see in the numbers below that Government contracts remain crucial for Palantir’s success. 

Government: 

• Government revenue growth accelerated 5 points sequentially to 45% YoY to $487 million, accounting for 55% of revenue.  
• US government revenue grew 45% YoY to $373 million, and international government revenue also rose 45% YoY to $114 million.  

Palantir said US growth was driven by new awards reflecting growing AI software demand, while international growth was driven by UK healthcare and defense sector work and the new NATO contract.  

In the call, the CEO used the word lumpiness when asked about government contracts, and notably, did not answer the question directly rather used it as an opportunity to talk about the overall business in both the quoted portion below and the lengthier response found here. 

“Dan Ives: 

Thanks. And, another amazing quarter. I mean, it's just — so my question is, given that what we're seeing in the government, isn't that another opportunity where you could actually gain more share of budgets as you go to more meritocracy? Like, Palantir should actually gain more dollars within the budgets of DoD and a lot of other agencies. 

Alex Karp: 

We're very optimistic about what we're going to do in the US, but the devil's in the details. And we're running this business for you with you as owners, which means it's like there's going to be maybe lumpiness, but we predict we're going to do very, very well […] “ 

There was mention on the call that they are seeing government demand globally minus Europe … although that could go against the trend toward sovereign AI.  

Per management: “I would say as an unknown variable, we're seeing very significant demand for our software, our government software around the world outside of Europe. And those are early days, but the demand — the signal there is very strong.” 

US Commercial Revenue Accelerates to 71%: 

Commercial revenue growth accelerated two points sequentially to 33% YoY to $397 million, as Palantir is growing rapidly in the United States, yet faces persisting headwinds in Europe.  

• US commercial revenue accelerated from 64% last quarter to 71% YoY this quarter to $255 million, surpassing a $1 billion annualized run rate for the first time on elevated AI demand. However, the guide for next quarter does indicate Q1 could be the peak with fiscal year growth of 68% guided. 
• International commercial revenue declined (5%) YoY to $141 million, weighed down by soft European demand and a one-time revenue catch-up in Q4. 

Not only did Palantir’s US commercial segment see revenue growth accelerate to the highest growth rate in nearly three years, but it also saw record growth in a handful of key metrics that support strong growth continuing through the year.  

• US commercial accelerated 31 points YoY and 7 points QoQ to 71% in Q1, surpassing Q4 2023’s 70% level and the highest growth since Q2 2022. This strong growth means that Palantir’s US commercial segment is on track to rise more than 2.5x in two years.  
• Palantir raised its FY25 US commercial growth guidance from 54% YoY to 68% YoY, projecting revenue of $1.178 billion, compared to $457 million in 2023. The raise represents about $100M more than previously expected. 

US commercial customer count rose 65% YoY and 13% QoQ to 432, with Palantir adding 50 net new customers in the quarter. Palantir has added 111 net new customers in Q4 and Q1 combined, its highest two-quarter total on record.  

The segment’s strong growth outlook is supported by robust key metrics: 

• 2x YoY growth in US commercial deals closed above >$1M 
• 127% YoY and 30% QoQ growth in US commercial remaining deal value to $2.32 billion 
• 183% YoY growth in US commercial total contract value (TCV) booked of $810 million 

Key Metrics Support Continued Growth 

While US Commercial featured many strong key metrics yet NRR, RPO and Billings stood out with strong growth as well in Q1. 

• Total remaining deal value (RDV) accelerated from 39.2% in Q4 to 45.6% in Q1 as it rose to $5.97 billion. 
• RPO accelerated from 39.5% YoY in Q4 to 46.1% YoY in Q1 at $1.90 billion. 
• Total contract value (TCV) booked increased 66% YoY to $1.5 billion. 
• Billings rose 44.8% YoY to $905 million. 
• Net retention rate (NRR) rose four points sequentially to 124%, its highest level in three years. Palantir pointed out that NRR should continue to expand in the coming quarters: “As net dollar retention does not include revenue from new customers that were acquired in the past 12 months, it has not yet fully captured the acceleration and velocity in our US business over the past year.” 

Margins 

Palantir’s margin profile is exceptionally strong, as the company continues to drive operating margin expansion while accelerating revenue growth. This helps the company’s Rule of 40 metric, which stands at 83 as it combines EBITDA margin with revenue – or more than double the ideal 40 that many SaaS companies set out to acheive yet cannot due to a lack of GAAP margins.  

• GAAP gross margin was 80.4% in Q1, down 1.3 points YoY. Adjusted gross margin was 82.1%, down more than 1 point YoY. 
• GAAP operating margin expanded to 19.9%, up more than 7 points YoY.  
• Adjusted operating margin was 44.2%, up 8.5 points YoY. For Q2, Palantir guided its adjusted operating margin to 43.1%, which would represent a third consecutive quarter above 40% and up nearly 6 points YoY. 
• GAAP net margin was 24.2%, up more than 7.5 points YoY.  
• Adjusted net margin was 37.8%, up nearly 8 points YoY. 

Palantir also boosted its full-year adjusted operating income forecast from its prior view of $1.551-1.567B to $1.711-1.723B. FY25’s adjusted operating margin is now projected to be 44.1%, up from its prior view of 41.6%.  

EPS 

Despite the top-line beat, Palantir met adjusted EPS estimates in the quarter at $0.13, up 68% YoY. GAAP EPS was $0.08, up 100% YoY.  

Looking ahead through the rest of FY25, adjusted EPS growth is expected to decelerate, from Q1’s 68% YoY to 20% YoY by Q4. However, estimates have risen over the past three months – Q2’s growth rate has come up 11 points and Q3’s up by 9 points. 

For FY25, Palantir is expected to see adjusted EPS growth of nearly 43% YoY to $0.58, before decelerating to 25% growth to $0.73 in FY26. 

Cash Flows and Balance Sheet 

Palantir stands out for its ridiculously strong cash flows, though operating and free cash flow margins moderated quite substantially in Q1 relative to 2H 2024.  

• Operating cash flow was $310.3 million in Q1 for a margin of 35%, down from 56% in Q4.  
• Adjusted free cash flow was $370.4 million for a 42% margin, down from a 63% margin in Q4. Palantir raised its adjusted FCF guidance for FY25 from $1.5-1.7 billion to $1.6-1.8 billion, implying an FCF margin of 43.7%. 
• Adjusted EBITDA margin was 45%. 
• Cash and equivalents totaled $5.43 billion, while debt was zero. 

Conclusion: 

Part of our process is to highlight stellar earnings reports and Palantir certainly qualifies. It’s hard to find a blemish in the company’s current quarter as it’s perhaps the best report the company has reported yet – which is saying a lot. We are certainly seeing companies at the data layer doing well in AI with Oracle also reporting strong results, and this is likely to be a theme in the coming years.  

The valuation with Palantir is a gamble. The bulls believe they’ve speculated correctly, while there’s likely to be short sellers who do well with this stock too. PLTR is attempting to set a new bar for AI software with the 80 forward valuation, yet 39% revenue is a tricky spot to be as it barely qualifies as high-growth (yes, it’s US commercial segment does qualify, but you could say that for a few stocks trading a much lower valuations).  

Congrats to all the Palantir longs, it’s certainly paid off in spades. As for the IOF, this isn’t one I was able bite on at the high valuation and that remains my conclusion at this time. If we can get a more reasonable valuation, however, we’d love to have this one in the portfolio.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

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