Why Palantir Stock Is Plummeting Today

Palantir (NASDAQ: PLTR) stock is getting hit with big sell-offs in Tuesday's trading after the company's first-quarter earnings release yesterday. The company's share price was down 13.7% as of 10:30 a.m. ET.

Palantir published its Q1 results after the market closed yesterday and delivered a profit that was in line with Wall Street's expectations and sales that beat the average forecast. The company also raised its full-year performance targets, but the stock is pulling back because the new forecasts fell short of some higher-end expectations.

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Palantir stock sinks despite strong Q1 results

For Q1, Palantir posted non-GAAP (adjusted) earnings per share of $0.13 on sales of $884 million. The company's profit was in line with the average analyst estimate, and revenue came in significantly ahead of Wall Street's target for sales of $863 million.

Overall sales were up 39% year over year in the quarter, and sales to U.S. customers increased 55% to $628 million. Meanwhile, adjusted net income surged 70% annually to reach $334.4 million. Adoption for the company's Artificial Intelligence Platform (AIP) software suite helped drive strong growth in the quarter, and Palantir raised its performance targets for the year.

What's next for Palantir?

Despite big sell-offs for the stock today, Palantir's forward guidance updates suggest that momentum for the business will remain very strong in the near term.

• Sales for this year are now projected at between $3.89 billion and $3.9 billion -- up from its previous guidance for sales between $3.74 billion and $3.76 billion.
• Palantir raised its adjusted operating income target from between $1.551 billion and $1.567 billion to between $1.711 billion and $1.723 billion.
• The company also now expects annual free cash flow (FCF) to be between $1.711 billion and $1.723 billion -- up from its previous target for FCF between $15 billion and $1.7 billion.

Palantir's valuation pullback following strong Q1 results and big guidance updates highlights the risks associated with the company's extremely growth-dependent valuation. Shares could continue to be volatile in the near term as investors rerate the software specialist's growth outlook and respond to interest rate news and other macroeconomic factors.

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Keith Noonan 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.