Is Palantir Stock a Buy on the Dip as Revenue Continues to Surge?

Palantir Technologies (NASDAQ: PLTR) turned in another quarter of impressive results, as revenue growth once again accelerated. However, the stock dipped on the news and is down more than 15% over the past year.

Let's dig into Palantir's Q3 results and prospects to see why I think it could become one of the biggest winning artificial intelligence (AI) winners of the next decade.

Image source: The Motley Fool.

Another great quarter

For the 13th straight quarter, Palantir's quarterly revenue growth accelerated. Its year-over-year revenue growth has now gone from 13% in Q2 2023 to 96% in Q3 2026.

Its Q3 revenue of $2.31 billion also handily topped management's prior forecast of $2.16 billion to $2.164 billion and the analyst consensus of $2.18 billion, as compiled by LSEG. Adjusted earnings per share, meanwhile, surged from $0.18 to $0.44, besting the $0.41 consensus.

Data source: Palantir. All figures represent year-over-year growth.

U.S. commercial revenue yet again led the way, as customers continue to embrace and expand their use of its Artificial Intelligence Platform (AIP). U.S. commercial revenue surged 148% to $984 million in the quarter, while U.S. commercial remaining deal value climbed 79% to $6.52 billion. Meanwhile, the company closed U.S. commercial deals worth $1.46 billion in total contract value in the quarter, an 11% year-over-year increase.

In my view, the most impressive metric from Palantir's report was once again its net revenue retention, which measures revenue growth from existing customers that have been with the company for more than a year. This expanded to 165% from 157% in Q2, showing how quickly existing customers are increasing their spending with Palantir. This metric also shows how valuable its customers believe its platform is.

Palantir also continues to add new customers, with its U.S. commercial customer count climbing by 29% year over year and 5% sequentially. Its overall customer count increased by 20% year over year and 4% sequentially.

On the government side of its business, revenue surged 81% year over year to $1.15 billion. U.S. government revenue skyrocketed 96% to $953 million. International government revenue, meanwhile, increased by 31% to $192 million. Its smaller international commercial segment revenue rose by 21% to $184 million.

Looking ahead, Palantir projected Q4 revenue of between $2.649 billion and $2.653 billion, representing 88% growth at the midpoint. Note that last quarter it forecast 83% revenue growth and then delivered 96% growth, so it could point to another quarter of revenue acceleration in Q4.

For the full year, it raised its revenue guidance to $8.53 billion to $8.534 billion, representing 82% growth. That's up from prior guidance calling for revenue between $8.150 billion and $8.158 billion, and up from its original revenue forecast of between $7.182 billion and $7.198 billion.

It expects U.S. commercial revenue to rise by at least 143%, up from its prior guidance of at least 134% growth and its original outlook of at least 115%.

Huge growth could lead to big gains

One of the biggest knocks on Palantir's stock has been its valuation. And while it's come down considerably, the stock still trades at a forward price-to-sales (P/S) ratio of 33.5 times 2027 analyst estimates. However, analysts are only projecting revenue growth of around 50% next year to $12.9 billion. If the company can continue to accelerate its revenue growth as it has each quarter over the past three years, revenue could double and be closer to $17 billion next year. Grow another 70% from there, and its revenue would be $29 billion in 2028.

If that were to happen, suddenly Palantir doesn't look very expensive, as it would be trading at a P/S multiple of 14 times 2028 sales while growing revenue rapidly. This is a high-gross-margin, very lean business that's growing rapidly and deserves a premium multiple, so Palantir certainly still has a lot of potential upside if it can accelerate its revenue growth next year.

This makes it one of the best software-as-a-service (SaaS) stocks to own today.

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.