Palantir Stock Soars as "Unrelenting" Artificial Intelligence (AI) Demand Drives 43% Earnings Growth and Annual Guidance Raise

Palantir Technologies (NYSE: PLTR) stock gained 13.7% in Monday's after-hours trading, following the software-as-a-service (SaaS) company's release of a robust third-quarter 2024 report.

The stock's big rise is attributable to the quarter's revenue and earnings that both beat Wall Street's expectations, fourth-quarter revenue guidance that also came in higher than the analyst consensus estimate, and management's increasing its full-year 2024 guidance for revenue and a couple of other key metrics.

As with recent quarters, investors were also likely pleased that Palantir continues to grow its commercial business at a rapid pace. The company was originally focused on governmental agencies, and its heavy dependence on government spending had concerned some investors.

Palantir Technologies' key numbers

Data source: Palantir Technologies. GAAP = generally accepted accounting principles. Calculations by author except for revenue and EPS growth, which were provided by Palantir.

Investors should focus on the adjusted numbers because they exclude one-time items.

Wall Street was looking for adjusted EPS of $0.09 on revenue of $701.1 million, so Palantir exceeded both expectations, with the top-line beat particularly impressive. It also surpassed its own revenue guidance, which was for $697 million to $701 million. And it raced by its guidance for adjusted income from operations, which was for $233 million to $237 million. (Palantir does not issue earnings guidance.)

Palantir generated cash of $420 million running its operations during the quarter, up 215% from the year-ago period. Its adjusted free cash flow was $435 million, up 209% year over year. The company ended the quarter with cash, cash equivalents, and short-term investments of $4.6 billion. It has no long-term debt.

What happened with Palantir in the quarter?

(All percentage growth figures are year over year.)

• Palantir stock joined the S&P 500 index on Sept. 23.

• Commercial revenue grew 27% to $317 million, accounting for 44% of total revenue.

• Government revenue grew 33% to $408 million, or 56% of total revenue.

• By region, U.S. revenue grew 44% to $499 million, accounting for 69% of total revenue. (Non-U.S. revenue accounted for the other 31% of revenue.)

• Total customer count increased 39%.

• The company closed 104 deals over $1 million.

• U.S. commercial revenue jumped 54% to $179 million.

• U.S. commercial customer count surged 77%.

• U.S. commercial deals closed jumped 27% to 130.

• U.S. commercial remaining deal value soared 73%.

• U.S. government revenue grew 40% to $320 million. This market includes defense and intelligence agencies.

What the CEO had to say

Here's CEO Alex Karp's statement in the earnings release:

We absolutely eviscerated this quarter, driven by unrelenting AI [artificial intelligence] demand that won't slow down. This is a U.S.-driven AI revolution that has taken full hold. The world will be divided between AI haves and have-nots. At Palantir, we plan to power the winners.

In his letter to shareholders, Karp said that the "release of our newest platform, AIP, has transformed our business."  AIP, which stands for "artificial intelligence platform," was launched in mid-2023, and has boosted Palantir's growth.

I couldn't agree more with Karp's comments about AI taking "full hold." It's why I'm also bullish on shares of AI chip leader Nvidia.

Guidance: Q4 outlook issued and annual outlook raised

Q4 guidance:

• Revenue of $767 million to $771 million. This equates to growth of 26% to 27% year over year.

• Adjusted income from operations of $298 million to $302 million. This equates to growth of 42% to 44% year over year.

Going into the release, Wall Street had been modeling for Q4 revenue of $741.4 million, or 22% growth, so Palantir's guidance sprinted by this expectation.

Annual guidance:

Data source: Palantir Technologies. YOY = year over year. *Calculations by author except for U.S. commercial revenue growth guidance, which Palantir provided.

Palantir's super-strong full-year guidance speaks for itself. The outlook for adjusted operating income growth of 67% year over year is phenomenal.

An AI stock worth considering buying or at least watching

In short, Palantir turned in a terrific quarter and guidance --again.

Reiterating my closing after last quarter's earnings release: "Palantir stock is worth considering buying or at least watching if you're an investor interested in a company in the AI space that's profitable and growing at a fast clip."

Palantir stock is trading at 115 times projected 2024 earnings. This is a very high forward price-to-earnings (P/E) ratio. But it's not crazy-high for the stock of a company that Wall Street estimates will grow earnings 44% this year and at an average annual rate of 58% over the next five years -- and that generates powerful free cash flows (FCFs). FCF has consistently and significantly been exceeding net income. And arguably, at least over longer terms, FCF is a more accurate gauge of a company's performance than net income or "earnings," which are simply accounting metrics.