Palantir's U.S. Revenue Soars 119% as Commercial Revenue Surpasses Government Revenue for the First Time. Here's Why Its Growth Is Still Surging, Even as Other AI Stocks Falter

In many ways, Palantir Technologies (NASDAQ:PLTR) is a battleground stock like no other. Bulls cite the company's track record of accelerating growth, while bears argue that its stratospheric valuation is laughable.

Palantir weighed in with the results of its quarterly financial report, and to say that the adoption of artificial intelligence (AI) continued unfettered just might be an understatement.

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Paint by numbers

Given the recent rout in AI-related stocks, Palantir had a lot to prove heading into its third-quarter earnings report, and the AI and data-mining specialist delivered. Revenue of $2.3 billion rose 96% year-over-year -- marking the company's highest-ever growth rate -- while also climbing 20% quarter-over-quarter. This fueled earnings per share (EPS) of $0.44, which surged 144%.

For context, analysts' consensus estimates called for revenue of $2.2 billion and EPS of $0.41, so Palantir simply crushed Wall Street's expectations.

Palantir's U.S. commercial segment, which includes its flagship Artificial Intelligence Platform (AIP), led the charge. Revenue for the segment rose 148% year over year and 29% quarter over quarter to $984 million, outpacing U.S. government revenue for the first time. Growth for the U.S. government segment held its own, soaring 96% year over year and 18% sequentially to $953 million.

The company's total contract value (TCV) closed during the quarter was $2.92 billion, up 6% year over year. Of that, the U.S. commercial segment closed TCV of $1.46 billion, up 11%. Furthermore, Palantir's net dollar retention rate of 165% shows that existing customers are spending 65% more than they did this time last year. That's evidence of deepening relationships with its customers.

The building blocks are in place for future growth. Palantir's U.S. commercial segment's remaining deal value (RDV) -- the value of contracts in process or awaiting fulfillment -- surged 79% year over year and 4% quarter over quarter to $6.52 billion.

Other metrics help illustrate the broad base of Palantir's stellar execution. The company's Rule of 40 score -- which measures the quality of earnings -- rose to 158% -- with any number above 40% indicative of financial strength and resilience. Palantir also delivered operating cash flow and adjusted free cash flow of $1.2 billion each, with roughly a 53% margin.

Palantir's financial position continued to improve, with cash and equivalents totaling $10.56 billion.

Moreover, management increased its full-year revenue guidance to roughly 91% growth, up from its forecast for 82% growth issued just last quarter. This shows that Palantir's strategy continues to gain converts.

Make no mistake, despite the company's parabolic growth, its valuation continues to spark a fierce debate. Palantir is now selling for 125 times earnings, but in all fairness, the most commonly used valuation metrics fall short when measuring high-growth stocks.

Using the more appropriate price/earnings-to-growth (PEG) ratio -- which factors in the company's phenomenal growth rate -- returns a multiple of 0.53, when any number less than 1 is the standard for an undervalued stock. For context, Palantir just delivered its 13th consecutive quarter of accelerating revenue growth, and its forecast suggests there’s more in store.

Here's why Palantir is thriving

While some AI companies are eager to get their hands on data, Palantir has taken a different approach. CEO Alex Karp argues that businesses should not cavalierly hand over their data to others -- particularly those peddling AI solutions. In doing so, he says, they are unintentionally handing over their proprietary knowledge, workflows, and strategic advantage -- what he calls a business's "alpha" -- or that which makes them special or gives them an edge.

Palantir uses its boot camps to demonstrate how businesses can get real-world AI-powered results and a solid return on investment -- something its rivals lack. Once customers have seen the evidence firsthand, they simply keep coming back. That's why Palantir’s growth continues to surge, even as its AI rivals stumble.

There's no question that the stock carries a hefty premium. As such, any failure -- real or imagined -- will spark a rerating that's both swift and severe. For that reason, Palantir won't be a fit for every investor. Those looking to start a position or add to an existing one should consider dollar-cost averaging.

For my money, the evidence is clear. Palantir stock is a buy.

Danny Vena, CPA has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.