Palantir's Stock Falls Despite Its 'On Fire' Earnings

Despite delivering strong first-quarter earnings and issuing upbeat forecasts, Palantir Technologies Inc. saw its shares plunge over 9% in after-hours trading on Monday. The drop surprised some investors, especially given the company’s positive performance metrics and raised guidance for the rest of the year.

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On the earnings call, CEO Alex Karp struck a confident tone, stating, “Palantir is on fire.” Management highlighted key improvements to full-year projections. The company now expects its 2025 revenue, adjusted operating income, and adjusted free cash flow to rise by 4%, 10%, and 13%, respectively. While these numbers look impressive on paper, the stock market’s forward-looking nature played a major role in the share price decline.

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According to seasoned trader Mark Minervini, all the positive momentum may have already been factored into Palantir’s stock. He explained to MarketWatch that markets act as discounting mechanisms, meaning expectations for strong performance often get baked into prices before results are released. With the bar already set high, it can be hard for a stock to move higher, even with solid results.

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In terms of future outlook, analysts surveyed by FactSet predict that Palantir’s growth in adjusted earnings per share will slow down significantly. After rising 62.5% in the latest quarter, EPS growth is expected to decelerate to 46.1% in the second quarter and fall further to 38% in the third quarter. This anticipated slowdown may be another factor behind the stock’s pullback.

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For the March quarter, Palantir’s adjusted EPS met expectations at 13 cents, while revenue climbed 39% year-over-year to $884 million, beating consensus estimates of $862 million. However, heading into the earnings announcement, the stock had already gained 64.6% in 2024 and was trading near its 52-week high.

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From a technical analysis standpoint, it was also near overbought territory, with a sustained 200-day moving average uptrend. Given those conditions, it’s not surprising that investors chose to lock in profits.

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Valuation has also become a sticking point. At current prices, Palantir trades at nearly 189 times projected earnings for the next 12 months. That’s nearly double its historical average multiple of 98 since it debuted on public markets in 2020, based on FactSet data. Another valuation metric, the PEG ratio—which adjusts for expected earnings growth—stands at 5.5 for 2025.

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Since a PEG above 1 typically indicates overvaluation, this adds to concerns that the stock may be overpriced relative to its expected growth.

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Volatility is another consideration. Palantir’s beta score of 2.15 over the past 90 days reflects significantly higher volatility compared to the broader market. A beta over 1 means the stock tends to swing more sharply than average, adding risk for investors who aren’t prepared for rapid price changes.

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Still, Palantir has a devoted fan base among retail investors. Gil Luria, head of tech research at D.A. Davidson, believes these “very loyal” shareholders are motivated more by Palantir’s long-term mission than by short-term financial ratios.

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Yet, Minervini suggested that if Palantir keeps exceeding earnings expectations, the company’s inflated P/E ratio could normalize quickly, providing room for the stock to appreciate further.

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A major concern, however, remains Palantir’s heavy reliance on government contracts, which account for about 55% of its total revenue. That concentration poses a risk, especially if public sector spending is reduced.

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Mark Giarelli, an analyst at Morningstar, acknowledged positive growth in Palantir’s U.S. commercial segment, which could help offset some of the government exposure. But he also noted that expansion into regions like Europe has yet to gain significant traction, limiting diversification.

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During the earnings call, when asked about potential risks from government spending cuts, particularly from the newly formed Department of Government Efficiency (DOGE), executives avoided giving direct answers. CTO Shyam Sankar commended the DOGE initiative, and CEO Karp remarked that Palantir performs well under pressure, saying, “We like pressure on the system.”

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Despite concerns, some analysts still see potential upside. William Blair’s government-contract tracker shows that Palantir is favorably positioned to win upcoming defense contracts and appears aligned with the current administration’s push for operational efficiency.

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However, analysts there also anticipate that the company’s revenue growth could slow in the second half of the year, meaning the stock might continue to experience volatile price movements.

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In summary, Palantir delivered solid results and boosted its outlook, but valuation concerns, high expectations, slowing growth projections, and heavy government exposure led investors to step back. While loyal shareholders remain optimistic, broader market sentiment suggests the path forward could be rocky.

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