Palantir: A High-Growth AI Powerhouse with Expanding Moat, but Risks Loom

• Palantir remains a high-growth company, with revenue increasing at 29% YoY and accelerating in the U.S.

• The company has maintained GAAP profitability for eight consecutive quarters and boasts high cash flow margins.

• Its strong moat, particularly in government contracts, is expanding, making it a trusted name in AI-driven data analytics.

• Risks include declining billings and reliance on interest income for profitability.

• If growth remains above 25-30%, Palantir could justify a market cap exceeding $500 billion.

  
  

Palantir has defied traditional valuation metrics with a P/E ratio of 250 and a P/S (FWD) ratio above 60, making standard overvalued/undervalued classifications irrelevant. Investors in Palantir face the challenge of market irrationality, but the company's revenue growth and market position make it a compelling stock. The company specializes in data integration and analysis, catering to both government and commercial clients, with a core U.S. market generating significant revenue. Its main platforms—Gotham, Foundry, and Apollo—are further strengthened by the recent launch of its Artificial Intelligence Platform (AIP), which helps businesses integrate large language models.

Palantir’s revenue surged from $595 million in 2018 to $2.87 billion in 2024, with a consistent 29% CAGR over the last five years. U.S. revenue growth accelerated throughout 2024, reaching 52% YoY in Q4. This performance led to a 12% QoQ revenue increase, a pace rarely seen in established firms with a $250 billion market cap. Palantir is successfully proving its ability to achieve software-like margins, with cash from operations in Q4 hitting $460 million, equating to a 56% margin. The company's "Rule of 40" score rose to 81%, further reinforcing its shift from a consulting model to a software-driven enterprise.

The company benefits from its clear philosophy and pro-Western stance, making it a preferred partner for governments and businesses prioritizing security. U.S. government and commercial revenues are accelerating, and while international growth is slower, geopolitical trends indicate increased European defense spending, which could drive further Palantir adoption. The company's partnerships, including collaborations with Anduril, position it well in defense-related AI and efficiency-driven government contracts. Its newly launched Warp Speed software is already improving efficiency in manufacturing and defense, reinforcing its moat.

Palantir's total addressable market (TAM) estimates range from $230 billion in 2025 to over $1.4 trillion by 2030. The company is growing like a high-growth startup while possessing a significant competitive moat and a net dollar retention rate of 120%. Investors and analysts have consistently underestimated Palantir’s ability to surpass expectations, further validating its potential for continued market expansion.

However, there are risks. The most concerning is the decline in billings, a key indicator of future revenue momentum. If this trend persists, investor confidence in Palantir’s high valuation could weaken. Additionally, the company’s profitability is currently propped up by interest income, which accounted for $196.8 million of its $468 million net income in 2024. If rates decline, this income stream will shrink, making it imperative for Palantir to generate more profit from its core operations.

Despite these concerns, as long as Palantir maintains growth above 25-30%, the bullish narrative is likely to hold, and the stock could continue its upward trajectory. If growth slows, valuation concerns could trigger a sharp correction.

TL;DR: Palantir is experiencing rapid growth with strong government and commercial adoption. Its moat is expanding, but risks like declining billings and reliance on interest income pose potential challenges. If it maintains its momentum, the stock could continue to rise significantly.