Palantir Technologies released its second-quarter earnings report on Aug. 3. Here’s Morningstar’s take on Palantir’s earnings and stock.
Key Morningstar Metrics for Palantir Technologies
- : $153.00Fair Value Estimate
- : ★★★Morningstar Rating
- : NarrowMorningstar Economic Moat Rating
- : Very HighMorningstar Uncertainty Rating
What We Thought of Palantir Technologies’ Q2 Earnings
Palantir shares rose more than 10% after second-quarter results delivered record growth rates in US commercial revenue (150%) and US government revenue (90%), along with all-time highs in operating margins (62%), net retention (157%), and free cash flow margin (63%).
Why it matters: Palantir has the best growth and margin profile in our software coverage, but its valuation is demanding. Ostentatious growth is needed to placate investors, and we got that this quarter. We think the current share price makes sense, but there’s little margin for error.
- For an investor to achieve a 10% return, Palantir must benefit from orderly multiple compressions over the next five years while growing at roughly a 45% average annual rate. This growth rate would place it in the top quintile of previously realized growth rates for our software coverage since 2010. Difficult, but not impossible.
- While most companies would prefer to add 35% more US commercial customers year over year, we are more impressed by net retention, US commercial revenue, and margin expansion. This combination suggests the platform is seeing deeper deployments and scaling incredibly well.
The bottom line: We maintain our $153 fair value estimate for narrow-moat Palantir. We see the business thesis strengthening as customers demand model portability, data sovereignty, and governed actions in artificial intelligence deployments, but we believe the share price is adequately capturing Palantir’s impressive trajectory.
- Palantir is priced for extremely high growth and strong margins over the next decade, and we think that makes sense. The business case is phenomenal, but the investment case is only average considering the high embedded expectations. We love the ontology, its model agnosticism, and capability of tying together disparate data silos with advanced governance features, but major cloud platforms remain a competitive tail risk. Given 3-star territory, investors should expect a fair risk-adjusted return.
- We believe Palantir’s ontology—the topological map that automates advanced decisioning by connecting customers’ data silos—is differentiated and hard to reproduce with frontier model solutions or cloud platforms today, but given the rapid pace of model advancements, we assume growth normalizes beyond the next 10 years.
The following are excerpts from Morningstar’s company report on Palantir.
Fair Value Estimate for Palantir Technologies
With its 3-star rating, we believe Palantir’s stock is fairly valued compared with our long-term fair value estimate of $153, which implies a 2026 enterprise value/sales multiple of 48 times. In our opinion, the primary driver of the stock’s value is the total addressable market Palantir’s software can ultimately serve. Our base case has Palantir’s TAM growing to $1.4 trillion by 2033. We forecast 52% average annual growth between 2026 and 2028. We project gross margins to remain in the 83-85% range over the next 10 years as we balance the onboarding of higher-margin enterprise customers with the potential for cloud costs to rise amid ever-increasing demand for computing resources.
Palantir’s capability to grow the top line while keeping major costs in check has been a positive trend that should continue. Palantir is the premier player in AI decision-making software, and we are bullish on its growth and profitability going forward, but we are mindful that AI enthusiasm can decouple market pricing from our intrinsic valuation.
Read more about Palantir Technologies’ fair value estimate.
Economic Moat Rating
We believe Palantir warrants a narrow moat, based on switching costs and intangible assets. Companies like AWS, Snowflake, and ServiceNow have developed data analytics tools, but Palantir differentiates itself as the only AI company with a framework that organizes disparate datasets and facilitates optimized decision-making. This machine-learning framework, which identifies opaque yet significant relationships in data and creates solutions for the end user, is referred to as the “ontology framework.”
Palantir often competes against internal information technology departments because it also analyzes data and creates information dashboards for interpretation. This traditional in-house IT and data aggregation framework often results in patchwork solutions that are cumbersome, difficult to improve, and costly to scale. The company is deeply ingrained within diverse end markets and mission-critical customer infrastructure and has top-of-class net revenue retention metrics that justify a narrow moat rating.
Read more about Palantir Technologies’ economic moat.
Financial Strength
We view Palantir’s financial position as healthy and improving. As of March 2026, Palantir had approximately $2.2 billion in cash and cash equivalents and no debt. Palantir now has three full years of GAAP profitability under its belt, with 2025 more than three times as profitable as 2024, and 2024 more than twice as profitable as 2023. We expect rapid growth and profitability to continue.
Palantir has had dilution concerns revolving around high stock-based compensation, which puts a non-cash drag on profitability. We saw a significant one-time stock-based compensation expense of $120 million in the fourth quarter of 2024, triggered by the stock price exceeding $50 per share, but we do not expect this to be a trend. Overall, we do not foresee any material changes to the current capital structure, and we expect the company to rapidly increase profitability metrics over time.
Read more about Palantir Technologies’ financial strength.
Risk and Uncertainty
We assign Palantir a Very High Uncertainty Rating. The company’s biggest uncertainty is the broad potential size of the TAM its software can serve and the level of customer penetration it can achieve. Unfortunately, because the TAM estimate is so uncertain and is one of the largest drivers of the stock’s valuation, downward share price corrections can be severe and painful when there is an unfavorable change in investors’ perception of future market size.
We do not see a direct comparable to Palantir’s ontology framework, but the firm’s rapid ascension has attracted the attention of leading artificial intelligence labs. We like the competitive positioning and value proposition as it stands today, but there is the chance that a technological juggernaut like Google, Anthropic, or OpenAI will develop software rivaling Palantir’s AI solutions. Considering the sensitivity of the data that Palantir ingests, there is a privacy-related ESG risk should a hack materialize. Fortunately, Palantir’s service allows for advanced encryption techniques, and there has not been a major data breach to date.
Read more about Palantir Technologies’ risk and uncertainty.
PLTR Bulls Say
- Palantir has developed the premier AI software, well-positioned to capitalize on trends toward digitization, automation, and reindustrialization. We believe Palantir’s software maintains a strategic position in the AI value chain as a model orchestrator.
- Palantir’s ontological framework and AI orchestration allow for the democratization of machine learning. Its software is useful to employees at all levels of a business to drive efficiency enhancements.
- Palantir stands to disproportionately benefit from a Golden-Dome-led fiscal spending boom and lacks a clear competitor.
PLTR Bears Say
- Palantir’s end markets are confined to entities that coalesce with Western ethos. This caps the total addressable market.
- The declining cost of AI inference and improvements in agentic LLMs will lower barriers to entry in the AI decision-making software industry, which Palantir currently dominates. Anthropic and OpenAI could become viable competitors.
- Palantir’s high valuation multiple leaves no margin for error in terms of execution. Any fears on the maintainability of growth will be met with sharp selloffs.
This article was compiled by Irza Waraich.
