Is It Time to Buy Palantir on the Dip as Revenue Continues to Accelerate?

Palantir Technologies (NASDAQ: PLTR) once again showed why it is one of the foremost artificial intelligence (AI) growth stocks when it reported its Q3 results, but the stock sank largely because of its high valuation.

Even after the drop in price, the stock is still up more than 150% on the year, and more than 350% over the past 12 months. Let's take a closer look at the company's earnings report to see if this could be a good buying opportunity.

Revenue growth accelerates again

For the ninth straight quarter, Palantir's quarterly revenue growth accelerated. During this stretch, its year-over-year growth has gone from 13% in 2023's Q2 to 63% last quarter. Its Q3 revenue of $1.18 billion also crushed management's earlier guidance for revenue of between $1.083 billion to $1.087 billion.

Data source: Palantir.

Palantir's growth was once again driven by U.S. commercial customers adopting its Artificial Intelligence Platform (AIP). U.S. commercial revenue surged 121% to $397 million in the quarter, while U.S. commercial remaining deal value skyrocketed 199% to $3.63 billion. Meanwhile, it closed U.S. commercial deals worth $1.31 billion in total contract value in the quarter, a 342% year-over-year increase.

Net dollar retention -- which measures revenue growth from existing customers that have been with the company for more than a year -- was a whopping 134%, showing that existing customers are rapidly expanding with Palantir. Meanwhile, it also continues to add new customers, with its customer count increasing by 45%.

Image source: Getty Images.

On the government side of its business, revenue climbed 55% year over year to $633 million. U.S. government revenue jumped 52% to $486 million. The company said the growth stemmed from demand for AI and its government software offerings for both new and existing awards.

International government revenue, meanwhile, climbed 66% to $147 million, largely due to its ongoing work in the U.K. International commercial customers continued to be Palantir's one weaker area, with revenue increasing 10% to $152 million.

Turning to profitability, adjusted earnings per share (EPS) rose from $0.10 to $0.21 year over year. That easily surpassed the $0.17 analyst EPS consensus, as compiled by LSEG. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, climbed 51% to $606.5 million.

Looking ahead, the company forecasts Q4 revenue of $1.327 billion to $1.331 billion, representing 61% growth at the midpoint. It also raised its full-year revenue guidance, taking it from a range of $4.142 billion to $4.150 billion to $4.396 billion to $4.4 billion, representing 52% growth. It expects U.S. commercial revenue to climb by at least 104%.

Should investors buy the dip?

Even after the pullback, Palantir's stock is still very expensive. It trades at a forward price-to-sales (P/S) ratio of about 81 times the 2026 analyst consensus. Even if the stock were to get cut in half from here, it still wouldn't be cheap.

That said, Palantir may become one of the most important AI companies in the world, as AIP helps large language models (LLMs) become useful in mission-critical applications in the real world, where AI hallucinations cannot be tolerated. How quickly customers are expanding with AIP demonstrates how powerful the platform is, which is helping draw in new customers as well.

Meanwhile, the company could have a big future opportunity with AI agents. It has extended the technology it's developed with AI Hivemind, which was originally developed for the classified space, to orchestrate AI agents to solve and develop solutions to difficult problems. It said commercial customers have already used it to help identify supply chain bottlenecks and then develop code to solve the problems.

Given its valuation, Palantir remains a high-risk, high-reward stock, and it's tough to recommend buying a stock trading at over 80 times forward sales. However, it should be on your list of stocks to potentially buy if the market does eventually see a big pullback.

Geoffrey Seiler 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.