Palantir's Revenue Soared at "an Otherwordly Growth Rate" of 63% in Q3. Here's Why That Isn't Enough.

Palantir Technologies (NASDAQ: PLTR) appears to be unstoppable. The artificial intelligence (AI) and data analytics software company's share price has skyrocketed more than 170% year to date. You can count the number of S&P 500 (SNPINDEX: ^GSPC) members with better performances in 2025 on one hand.

After the market closed on Monday, Palantir announced its third-quarter results. The company's revenue soared 63% year over year to $1.18 billion. That's impressive. But it's not enough.

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"Otherworldly" growth

In Palantir CEO Alex Karp's latest letter to shareholders, he described his company's revenue growth rate as "otherworldly." That's an exaggeration, of course. It's not too hard to find companies that have delivered even stronger growth in recent quarters. And those companies are based on planet Earth, by the way.

However, Karp's exuberance about Palantir's Q3 results is warranted. The company blew past the consensus Wall Street revenue estimate of $1.09 billion. Its revenue growth accelerated from a 48% year over year in the second quarter of 2025.

Palantir's bottom line looked great, too. The AI software leader posted earnings per share (EPS) of $0.18 based on generally accepted accounting principles (GAAP) and $0.21 on an adjusted basis. Analysts projected adjusted EPS of $0.17.

Karp noted in his letter to shareholders, "It is worth remembering that the business is now producing more profit in a single quarter than it did in revenue not long ago." He's right.

"A nosebleed zone"

Did Palantir's stock surge after the better-than-expected Q3 results? Nope. Shares even fell around 2% in after-hours trading on Monday. There's a simple reason why investors didn't jump up and down in celebration over what was truly a great Q3 update.

Karp addressed this issue in an interview on Monday, stating, "We are in a nosebleed zone. No one else is here." This time, he wasn't exaggerating.

Palantir's shares trade at a forward price-to-earnings ratio of 217. No other S&P 500 company has a forward earnings multiple at that level. The stock's trailing 12-month price-to-sales (P/S) ratio is 137. The next-highest P/S multiple in the S&P 500 is less than one-third of that number.

Is this nosebleed valuation worrisome to Karp? It doesn't seem to be. He wrote in the letter to shareholders:

Some of our detractors have been left in a kind of deranged and self-destructive befuddlement. It has indeed been difficult for outsiders to appraise our business, either its significance in shaping our current geopolitics or its value in the vulgar, financial sense.

Great, but not enough

Unfortunately, the only way to assess stock valuations is in -- to use Karp's words -- "the vulgar, financial sense." Stock valuations are, by definition, financial. Whether or not looking at something from a financial perspective is vulgar is a matter of opinion.

Application software stocks deservedly command a premium, with the average P/S multiple of 8.8 one of the highest of any industry. Palantir's valuation is 15.6 times higher than this average.

Even if Palantir continues to deliver revenue growth in the ballpark of 63% for the next few years, its valuation would still be expensive. Importantly, though, the company's own guidance for the fourth quarter of 2025 reflects a slight slowing of revenue growth at the upper end of the projected range.

Maybe Palantir is sandbagging with its guidance. After all, its Q3 numbers beat the top end of its previous forecast for the quarter. However, I wouldn't bet the farm on history repeating itself. The company could feel some impact from the U.S. federal government shutdown in Q4.

I think Palantir has a great business and great products. Its revenue and earnings growth are also great. The problem, though, is that this growth isn't enough to justify the stock's valuation.

Keith Speights 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.