I Said Palantir Stock Would Top $220 This Year. Here's What It Has to Prove on Nov. 2.

Back in August, I made a bullish prediction about Palantir Technologies (NASDAQ: PLTR): I said the artificial intelligence (AI) software company would reach $220 per share before the end of 2026, driven by its outstanding revenue growth and increasing demand from commercial customers.

I'm sticking with that prediction. But Palantir has some work to do.

On Friday, shares were trading in the $190 to $198 range, leaving the stock roughly 11% to 16% below my target. And with Palantir scheduled to report third-quarter earnings on Nov. 2, investors are about to get a much better idea of whether my prediction will come true.

I think Palantir needs to deliver three things to make a run at $220.

Image source: Getty Images.

1. Quarterly revenue needs to top $2.3 billion

Palantir has established a remarkable track record of accelerating revenue growth, thanks largely to businesses adopting its Artificial Intelligence Platform (AIP).

Second-quarter revenue jumped 93% year over year to $1.94 billion. U.S. commercial revenue was particularly impressive, climbing 149% to $764 million, while U.S. government revenue increased 90% to $809 million. Those are outstanding numbers for a company of Palantir's size.

But management's third-quarter revenue guidance of approximately $2.16 billion implies sequential growth of roughly 12%, compared with about 19% in the second quarter. That seems awfully conservative to me.

Palantir has consistently beaten its revenue guidance this year, and another quarter of 19% sequential growth would put revenue at approximately $2.3 billion.

That's the number I'm watching. If Palantir's revenue is growing at an accelerating rate, that would be an important bullish signal to the market.

2. Sales tied to the company's AI sovereignty efforts must increase

One of Palantir's more interesting opportunities involves the market for AI sovereignty services -- helping organizations maintain control over their data and AI operations rather than surrendering much of that control to external technology providers. It has been a primary focus of CEO Alex Karp in recent months.

It's a natural fit for Palantir. The company's software already helps customers connect their data, build digital models of their operations, and deploy AI applications while maintaining control over sensitive information.

Palantir has used its client boot camps to demonstrate how its software can solve potential customers' operational problems. Its sovereignty-focused efforts offer another way to introduce organizations to those capabilities.

But there's an important distinction between demonstrating what software can do and getting customers to pay for it. In the Q3 report, I will be looking for fresh evidence that these efforts are producing meaningful business. That could include new contracts, larger customer commitments, or management providing specific information about how sovereignty-related demand is contributing to growth.

Palantir's commercial business has already been expanding rapidly. Showing that its sovereignty initiatives are generating additional revenue would give investors another reason to believe that growth can continue.

3. Sterling profit margins must get even better

Revenue growth gets most of the attention when Palantir reports earnings. But profitability deserves just as much scrutiny.

Palantir reported an adjusted operating margin of 62% in the second quarter, up from 60% in the first quarter. That's an extraordinary level of profitability for a software company that's growing as quickly as Palantir.

It also raises expectations.

One of the advantages of selling software is that revenue can grow much faster than expenses once the company has developed its products and infrastructure. That allows a larger fraction of each incremental sale to be converted into operating profit.

I'd like to see Palantir push its adjusted operating margin above 62% in the third quarter. If revenue growth continues to accelerate while margins expand, it would strengthen the argument that Palantir will eventually justify its currently expensive valuation.

Can Palantir reach $220 in 2026?

I'm still bullish on Palantir. Its AIP has become an increasingly important tool for businesses that are looking to put AI to work, and its financial results have supported that enthusiasm.

But the stock isn't cheap, and investors have already priced in tremendous expected growth.

That's why the Nov. 2 report matters so much.

Revenue above $2.3 billion, evidence of meaningful business from AI sovereignty, and another improvement in operating margins would make a compelling case that Palantir's business momentum hasn't peaked.

I don't expect Palantir stock will reach $220 this year simply because management delivers another good earnings report. It needs to give investors a reason to raise their expectations.

But if Palantir delivers on all three of these points, I think my prediction has a good chance of coming true.

Patrick Sanders has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.