Palantir Technologies released its second-quarter earnings report on Aug. 4. Here’s Morningstar’s take on Palantir’s earnings and stock.
Key Morningstar Metrics for Palantir Technologies
- Fair Value Estimate: $115.00
- Morningstar Rating: ★★
- Economic Moat: Narrow
- Morningstar Uncertainty Rating: Very High
What We Thought of Palantir Technologies’ Q2 Earnings
Palantir posted its largest annual revenue growth in four years, up 48%. The rule of 40, a summation of revenue growth and operating margins, reached an impressive 94%. US commercial grew 92% year over year.
Why it matters: Palantir, with 40%-50% retail ownership, is a barometer of sentiment regarding the future of artificial intelligence. This quarter’s earnings keep the enthusiasm intact. We love the company, but believe valuation is a major headwind.
- Palantir trades at approximately 100 times revenue, a roughly 500% premium over other AI-oriented companies. Despite the company having robust competitive advantages tied to its sophisticated ontology, we believe this is turning into a difficult-to-justify valuation story.
- US commercial (the segment that includes nongovernment entities) is proving to be a massive success. We are seeing a rapid adoption of Palantir’s software thanks to diverse, efficiency-driving use cases. We project continued penetration in this large addressable market.
The bottom line: We keep our narrow moat rating and raise our fair value estimate to $115 per share from $100 due to the largest sequential guidance increase in Palantir’s history. If you are a potential customer, we believe Palantir is the ideal AI software. If you are an investor, we recommend sitting out.
- We use a discounted cash flow model to estimate the intrinsic value of the business. Our current DCF is pushing against rational boundaries. We project an average of 40% annual growth over the next five years, with revenue climbing to $21.0 billion from $4.2 billion.
- While we believe the market price has disconnected from our core intrinsic methodology, we acknowledge that momentum could continue to fuel Palantir shares higher. Chasing momentum here is risky—any slowdown will likely result in multiple compression that wipes out returns.
Fair Value Estimate for Palantir
With its 2-star rating, we believe Palantir’s stock is overvalued compared with our long-term fair value estimate of $115 per share. In our opinion, the primary driver of the stock’s value is the total addressable market Palantir’s software can ultimately serve. The TAM is truly a trillion-dollar question that’s laden with assumptions. Our base case has Palantir’s TAM growing to $1.4 trillion by 2033. From today, we assume growth is nonlinear, with a slight inflection higher from 2028-30 to rates nearing 35% per year.
Since going public, Palantir’s gross margins have grown from an initial low of 68.0% in 2020 to 80.5% in early 2025. The 2020 low gross margin was due to the accumulation of restricted stock units that were vested immediately when the company went public. Since then, the company has steadily improved its gross margin by scaling revenue faster than growth in salaries, hardware costs, stock-based compensation, and payments to cloud hosting services. We project approximately 500 basis points in gross margin improvement over the next 10 years, due to the addition of higher-margin commercial customers, but we are apprehensive about projecting much more appreciation because of the potential for cloud costs to rise with demand for computing resources.
Read more about Palantir Technologies’ fair value estimate.
Economic Moat Rating
We believe Palantir warrants a narrow moat rating, based on switching costs and intangible assets. Palantir differentiates itself as the only AI company with a framework that organizes disparate datasets and facilitates optimized decision-making. The firm offers nuanced and optimized solutions derived from the world’s most complex datasets. It’s deeply ingrained in diverse end markets and mission-critical customer infrastructure, and it has top-of-class net revenue retention metrics.
Read more about Palantir Technologies’ economic moat.
Financial Strength
We view Palantir’s financial position as healthy and improving. As of June, the firm had approximately $900 million in cash, $5 billion in marketable securities (mostly US Treasury securities), and no debt. Its liquidity position improved by $700 million thus far in 2025.
Palantir has had dilution concerns around high stock-based compensation, 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. We do not expect this to be a trend. Stock-based compensation averaged 34% of revenue in 2021-23, but this figure has decreased as the company has grown. Palantir also announced a share repurchase plan in 2023 of up to $1 billion to address dilution concerns.
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 uncertainties are the broad potential size of the TAM its software can serve and the level of customer penetration it can achieve. We like the versatility of the ontology framework, which makes Palantir software valuable to almost any company. This versatility creates significant upside potential. 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. We have modeled multiple scenarios for future demand, and the range of valuations is extreme.
There is also the chance that a new entrant or a technological juggernaut like Google will develop software that rivals Palantir’s AI solutions, which would increase competition and diminish pricing power. Palantir’s 10-to-20-year head start on AI solutions derived from machine-learning software protects it. A new entrant would need to invest large amounts of capital to surpass Palantir’s offering.
Read more about Palantir Technologies’ risk and uncertainty.
PLTR Bulls Say
- Palantir has developed the premier AI software and is primed to take advantage of the trend toward digitization and automation. AI software maintains a strategic position in the AI value chain.
- Palantir’s ontology 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’s new boot-camp-style sales effort has let it achieve rapid growth in the US commercial segment, which has a large TAM.
PLTR Bears Say
- Palantir’s end markets are confined to entities that align with its ethos, which caps its TAM.
- The decreasing cost of AI inference and the convergence of LLMs will result in lower barriers to entry in the AI decision-making software industry that Palantir currently dominates.
- Palantir’s dual-class share structure opens the door for overzealous non-core investment opportunities without common shareholders’ checks and balances.
This article was compiled by Isela Meraz.
