According to Fortune, Palantir reported third-quarter revenue of $1.2 billion, representing 63% year-over-year growth and beating analyst expectations of $1.09 billion. The company’s net income reached $476 million, up 40% from the previous year, with U.S. commercial business driving much of the growth through a 121% expansion to $397 million. CEO Alex Karp described the results as “arguably the best results that any software company has ever delivered,” highlighting a “Rule of Forty” metric of 114% that far exceeds the typical 40% benchmark considered strong performance. Despite these impressive numbers, Palantir shares fell approximately 3.5% in after-hours trading, continuing a pattern where strong results fail to translate into stock gains. This disconnect between operational performance and market reaction reveals deeper concerns about the company’s trajectory.
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The Valuation Conundrum
Palantir’s fundamental challenge remains its rich valuation relative to actual revenue generation. While $1.2 billion quarterly revenue represents impressive growth, it pales in comparison to other technology companies with similar market capitalizations. The company trades at forward revenue multiples that assume near-perfect execution and sustained hypergrowth for years to come. This creates a high-wire act where even exceptional results can disappoint because they fail to justify the premium valuation. The after-hours stock decline suggests investors are questioning whether Palantir can maintain its current growth trajectory long enough to grow into its valuation. This is particularly concerning given that much of the recent enthusiasm stems from AI-related contracts that may prove cyclical or competitive.
The Michael Burry Factor
The revelation that Michael Burry has taken a short position against Palantir, as shown in regulatory filings, adds significant weight to the skepticism narrative. Burry’s track record of identifying overvalued assets, most famously during the 2008 housing crisis, gives his bearish stance particular credibility. His simultaneous short positions in both Palantir and NVIDIA suggest he sees broader AI bubble dynamics at play rather than company-specific issues. This creates a psychological headwind for Palantir stock, as retail investors who followed Burry’s previous successful bets may now question their own positions. The timing is especially notable given Palantir’s recently announced partnership with NVIDIA, which the market initially celebrated but Burry apparently views as insufficient to justify current valuations.
Commercial Growth Sustainability Questions
While the 121% growth in U.S. commercial business appears spectacular on the surface, it raises questions about sustainability and concentration risk. Such explosive growth rates typically involve landing a few major contracts or benefiting from temporary AI hype cycles rather than establishing durable, recurring revenue streams. The company’s reluctance to name specific customers beyond Lowe’s implementing the NVIDIA partnership suggests either limited adoption or competitive concerns about revealing strategic relationships. Commercial contracts in the AI space often face significant implementation challenges, customization requirements, and longer-than-expected ROI timelines that can lead to churn or non-renewals. The transition from initial pilot programs to enterprise-wide deployments represents a major execution hurdle that many software companies struggle to clear.
Karp’s Comments as Market Signal
Alex Karp’s increasingly combative tone toward skeptics and venture into political commentary may signal underlying concerns about maintaining market enthusiasm. His shareholder letter references to “detractors” in “deranged and self-destructive befuddlement” and cultural commentary about rejection of “common culture” suggest a CEO feeling the pressure to defend his company’s narrative. Historically, when executives shift focus from operational results to philosophical debates or attacking critics, it often indicates they’re preparing investors for tougher times ahead. The political commentary about fentanyl and South American drug policy, while perhaps sincerely held, distracts from business fundamentals and may alienate potential government clients or commercial partners with different perspectives.
The AI Partnership Reality Check
Palantir’s NVIDIA partnership represents both opportunity and risk. While combining NVIDIA’s hardware with Palantir’s software platforms creates compelling solutions in theory, the practical implementation faces significant hurdles. Enterprise AI deployments require massive data integration, customization, and organizational change management that often take years to yield meaningful results. The partnership also makes Palantir dependent on NVIDIA’s pricing power and supply chain stability at a time when AI chip demand far exceeds supply. Furthermore, as more companies develop their own AI capabilities and cloud providers offer competing solutions, Palantir faces increasing competition in the very AI implementation space it’s counting on for growth. The company must demonstrate that its AI platform provides unique, defensible value beyond what customers can achieve through more standardized approaches.
Realistic Investment Outlook
For long-term investors, the critical question isn’t whether Palantir is growing rapidly today, but whether it can maintain sufficient growth to justify its valuation through multiple economic cycles. The company’s heavy reliance on government contracts provides stability but limits upside, while the commercial business faces ferocious competition from both established enterprise software providers and specialized AI startups. The current AI gold rush may create temporary demand spikes, but sustainable growth requires proving tangible business outcomes beyond the initial hype. Palantir’s challenge will be transitioning from a company that benefits from AI enthusiasm to one that delivers consistent, measurable AI-driven results across its customer base. Until it demonstrates this transition convincingly, the disconnect between operational performance and stock performance may persist.
