Palantir Just Delivered Phenomenal News to Investors, but Is It Too Late to Buy This Pricey Stock?

Amid market turmoil and questions about the economy ahead, investors wondered if Palantir Technologies (NASDAQ: PLTR) would show signs of a slowdown when it reported earnings earlier this week. After all, the software company depends on spending from the government and U.S. companies, and the government already has proposed significant budget cuts across departments. U.S. companies may face pressure from import tariffs ahead.

However, Palantir's earnings in the first quarter roared higher. The company's government and commercial businesses reported double-digit growth, and customer count and deal value climbed. Palantir also continued on its path of successfully balancing growth and profitability. On top of this, Chief Executive Officer Alex Karp delivered phenomenal news to investors. (I'll get to that below.)

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Though all of this sounds fantastic, investors and analysts have questioned the idea of buying Palantir shares today for one specific reason: valuation. Though Palantir's earnings performance is strong, the stock is pricey, trading for a mind-boggling 186x forward earnings estimates. This is after the shares climbed more than 1,000% over the past three years.

Considering Karp's comments and the company's bright future, is it too late to buy this expensive stock?

Image source: Getty Images.

Making smart use of data

Here's a look at the company's business and its latest earnings figures. Palantir sells software platforms that aggregate a customer's data and help that customer make smart use of it -- from developing strategies and plans on a battlefield to organizing workflow and patient placement at a hospital. The use of the software is far-reaching.

To further strengthen its offerings, Palantir launched its Artificial Intelligence Platform (AIP) two years ago, which uses artificial intelligence (AI) to drive data gathering and the development of often game-changing plans customers can apply to their own unique problems. This new platform has helped growth surge in recent quarters, and this continued in the first quarter of this year.

Palantir reported a 71% increase in U.S. commercial revenue and a 45% gain in U.S. government revenue in the period, showing that both businesses are booming. The company recorded a record level of U.S. commercial total contract value of $810 million -- up 183% year over year.

Customer count advanced in the double digits, and U.S. commercial customers reached 432. It's important to remember that U.S. commercial customers totaled only 14 about five years ago.

Balancing growth and profit

Finally, the company also demonstrated its strength in balancing growth and profit by reporting a Rule of 40 score of 83%. A software company should have a score of at least 40% to show its success in this area. By doubling that, Palantir is hitting it out of the park.

Now I'll consider the phenomenal news Karp delivered during this report. "Palantir is on fire," Karp said during the company's earnings call. And he wrote in his letter to shareholders that, "We believe our results are indicative of a revolution sweeping across our business and industry."

Karp says customers are rushing to get on board, to apply AI-led data gathering and AI-assisted decision-making to their projects and generate results they never would have believed possible. While in the past, potential customers would take a while to assess and consider working with Palantir, Karp says that today he's seeing a "ravenous whirlwind of adoption."

Palantir is so optimistic about what's ahead that it raised its full-year 2025 guidance for revenue to the range of $3.89 billion to $3.9 billion from the range of $3.74 billion to $3.75 billion. The company also lifted its forecasts for U.S. commercial revenue, adjusted income from operations, and adjusted free cash flow. Palantir expects GAAP operating income and net income every quarter this year.

Palantir may succeed, even in a tougher environment

All of this offers us reason to be optimistic about Palantir's earnings performance in 2025. Even a potentially tougher economic environment may not get in the way, as customers use Palantir's platforms to make their operations more efficient -- something that should help them better navigate economic downturns.

Palantir is a fantastic stock to own -- but is it too late to get in on the stock now, considering its price?

It's true that the valuation I mentioned above generally would be an argument to turn away from a stock. But in the case of Palantir, considering its stellar quarter-after-quarter earnings growth and future prospects, unless you're a value investor, you may want to set the valuation argument aside.

A forward price-to-earnings ratio looks at potential earnings over the coming 12 months but doesn't consider earnings five or 10 years down the road. Palantir may be in the early days of its commercial and government business growth story, and as a result, a lot more growth should be ahead.

This means Palantir might not be as expensive as you think -- at least if you hold on for the long term. For growth investors who don't mind seeing the stock potentially dip here and there in the near term and are ready to hold on as this story advances, Palantir makes a solid buy -- even at today's lofty valuation.

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Adria Cimino 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.