Palantir Guided for $2.16 Billion in Revenue for Q3. Its Last 2 Quarters Suggest We Should Expect More.

Palantir Technologies (NASDAQ: PLTR) has been one of the biggest winners of the artificial intelligence (AI) boom, with its stock gaining more than 1,000% over the last three years. But investors who think the company's best days are behind it may be in for a surprise when Palantir reports its third-quarter results on Nov. 2.

That's because Palantir has developed a habit of beating its own revenue guidance -- and its margins are widening.

The company's guidance was for third-quarter revenue between $2.160 billion and $2.164 billion, which would amount to another impressive quarter of growth. But based on Palantir's performances in the first half of the year, I think that forecast is far too conservative.

In fact, I wouldn't be surprised if Palantir delivers more than $2.3 billion in revenue, easily surpassing its own expectations.

Here's why.

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Palantir keeps raising the bar

Palantir has been on an incredible run this year, fueled by demand for its Artificial Intelligence Platform (AIP), which helps businesses and government agencies analyze enormous amounts of information and use AI to make decisions.

But what's particularly interesting is how Palantir consistently underestimates its own growth. When the company issued its first-quarter guidance in February, it projected revenue between $1.532 billion and $1.536 billion. Instead, it delivered $1.633 billion -- about 6.4% above the midpoint of that range.

The second quarter's beat was even better. Management projected revenue between $1.797 billion and $1.801 billion, but Palantir generated $1.935 billion -- approximately 7.5% more than projected.

The company's growth is accelerating, too. Revenue increased 16% sequentially in the first quarter, followed by a 19% increase in the second quarter. Year-over-year revenue growth reached 93% in Q2, up from 85% in Q1.

Now look at the company's third-quarter guidance.

Palantir's forecast of approximately $2.16 billion represents sequential growth of just under 12%. That would be a significant slowdown in growth from the previous quarter.

That doesn't make much sense to me, particularly when Palantir's commercial business has been expanding so rapidly. If the company simply matches its second-quarter sequential growth rate of 19%, third-quarter revenue would reach approximately $2.3 billion. And I think there's a reasonable chance Palantir will do even better.

Commercial demand is driving the growth

The biggest reason for my optimism is Palantir's U.S. commercial business, which has been growing at an extraordinary pace. Second-quarter U.S. commercial revenue increased 149% year over year to $764 million, while sequential growth reached 28%.

But revenue only tells part of the story. During the second quarter, Palantir closed 220 deals valued at $1 million or more, including 73 deals worth at least $10 million. Total contract value reached $3.37 billion, while U.S. commercial remaining deal value increased 124% year over year to $6.24 billion.

Those numbers suggest Palantir has plenty of business in the pipeline, although contract values don't necessarily translate into immediate revenue.

It has been expanding its emphasis on AI sovereignty -- giving businesses and governments greater control over their AI systems, sensitive information, and operational decisions.

Palantir recently conducted two sovereignty boot camps that attracted nearly 200 organizations, introducing potential customers to its technology and demonstrating how they can use AI without surrendering control of their data.

I've previously argued that these boot camps could generate another wave of commercial business. While it's too early to know how much revenue they'll lead to, they give Palantir another way to reach customers seeking practical AI applications.

Meanwhile, the company's government business remains a powerful source of growth. Its U.S. government revenue increased 90% year over year in the second quarter to $809 million, reflecting demand for its defense and intelligence applications.

Why I'm expecting another earnings beat

While there are no guarantees in investing, it's hard to argue against Palantir's performance. It exceeded its revenue guidance by increasingly large margins in each of the last two quarters, while its commercial business continues to expand at triple-digit percentage rates.

For me, the most important question the Nov. 2 report will answer won't be whether Palantir beat its $2.16 billion forecast. I expect that to happen. I'll be watching to see whether its revenue crossed $2.3 billion, and whether its growth has kept accelerating.

I remain bullish on Palantir for the long term. And I suspect its next earnings report will give investors another reason to be excited.

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