All Eyes Will Be on Palantir on Nov. 2. Here's What It Must Say to Keep the Run Going.

Palantir (NASDAQ: PLTR) has a major event coming in a few weeks: third-quarter earnings. Investors are always looking forward to these reports from Palantir because it's one of the few companies that reports on a Monday, so all eyes will be on it. Additionally, Palantir has a tremendous track record of beating expectations, and investors will be expecting another beat this quarter.

However, if it doesn't announce a beat, I would expect the stock to tumble, as that is what's currently priced in. Palantir has had an incredible run, but I think it must project continued revenue growth acceleration to maintain its run.

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Palantir's growth has been impressive

Palantir's AI-powered data analytics software has become more popular over the past two decades. It started as a government-focused company, providing software to various government entities. This eventually expanded into the commercial sector, where it's seeing the fastest growth today. Still, government revenue accounts for more than half of Palantir's total revenue.

Palantir's strength lies in its ability to work within existing systems and deliver actionable insights quickly. This can work in a fully automated environment or with human intervention as the final approval before an action is performed. Palantir has become a popular way for businesses across industries to integrate AI into their existing systems, and this shows up in its financials.

During the second quarter, its U.S. commercial revenue grew at a breathtaking 149% pace, while U.S. government revenue increased 90%. Overall, Palantir's revenue rose 93% year over year to $1.94 billion. That overall figure is important to note because Palantir only guided for about $1.8 billion in Q2 revenue. That's a significant beat, but Palantir has been underguiding and overdelivering for some time.

For Q3, management expects revenue of $2.16 billion. That projects an 83% revenue growth rate, which would be a deceleration from Q2's level. However, if Palantir beats revenue expectations by a similar amount to Q2 (about $150 million), that would boost Palantir's growth rate to 96%, allowing it to continue reporting accelerating revenue growth.

It's important that Palantir does this because its valuation suggests that it needs to continue doubling each year.

Palantir is very expensive

There is a ton of future growth priced into Palantir stock, and if the company starts reporting slowing growth, then the stock could sell off as a result. Palantir currently trades at 120 times forward earnings.

PLTR PE Ratio (Forward) data by YCharts

Most big tech stocks average about a 30x trailing earnings valuation, so for Palantir to reach that level, it would need to quadruple its earnings. Most rapidly growing tech companies don't have their profitability optimized, so earnings can grow through a combination of revenue growth and margin expansion. However, in Q2, Palantir's profit margin reached 55%. That's about as good as it gets, so for Palantir to expand its earnings total, it must grow its revenue base.

If Palantir's earnings and revenue grow at a 1-to-1 ratio, then Palantir's earnings must quadruple after accounting for 2026's results. That's huge growth, and if Palantir starts to report slowing revenue growth, that figure will be hard to achieve. So, all eyes will be on Palantir on Nov. 2, because if its revenue growth starts to slip, the stock may have a rough day on Nov. 3. However, if it reports accelerating revenue growth, I wouldn't be surprised to see Palantir's run continue, although a significant rise may be off the table due to how much growth is already priced into the stock.

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.