Palantir stock soars as Department of Defense spending powers earnings beat

11/05/2024 23:02
Palantir stock soars as Department of Defense spending powers earnings beat

Palantir stock surged Tuesday after its third quarter earnings surpassed expectations thanks to better-than-anticipated spending from the US government on its AI tech.

Palantir (PLTR) stock rose more than 20% early Tuesday after its third quarter earnings surpassed expectations thanks to better-than-anticipated spending from the US government on its AI tech.

Global government spending on Palantir’s products, primarily from the US, rose 40% from the prior year to $408 million in the third quarter, accounting for 56% of the company’s total revenue for the period. This was ahead of the $379 million expected for the segment, according to Bloomberg consensus estimates.

Palantir, which makes a range of data mining and analysis software including its Artificial Intelligence Platform (AIP), most recently won a $100 million US military contract in September for its AI tools that identify targets for air strikes.

“The AI revolution is underway now,” Palantir’s chief revenue and legal officer Ryan Taylor said on a call with investors late Monday. “The chasm between the AI haves and have-nots is rapidly widening and the whole world is watching.”

Taylor said Palantir’s US government business saw its “strongest sequential growth in 15 quarters driven largely by our DoD [Department of Defense] business' 21% quarter-over-quarter growth.”

Meanwhile, Palantir's revenue from commercial enterprises fell short of expectations, hitting $317 million versus the $317 expected. Its enterprise customers include oil and gas giant BP (BP), CBS Broadcasting and General Mills (GIS). The company said sales were impacted by "a step down in revenue from a government-sponsored enterprise in the Middle East." Palantir did not respond to a request for further details from Yahoo Finance.

Overall, the company reported adjusted earnings per share of $0.10 for the quarter, a penny ahead of expectations, on revenue of $725.5 million, which topped the $703.7 million expected by Wall Street analysts.

Palantir shares have rallied more than 190% since the beginning of the year, fueled by a broader boom in artificial intelligence and the US government’s growing interest in AI war technologies. The stock was added to the S&P 500 in September.

"Palantir is among a handful of infrastructure software companies that have started to meaningfully monetize generative AI," wrote Deutsche Bank (DB) analyst Brad Zelnick in a note to investors Monday.

While recognizing Palantir's advantages, Wall Street analysts overall have been skeptical of the stock’s surge. On average, they see shares falling to $32.81 over the next year, according to Bloomberg data, with roughly half of analysts tracked by Bloomberg recommending to sell the stock. Zelnick himself has a Sell rating on the stock and sees shares falling to $26. Shares stood at roughly $50 on Tuesday morning.

RBC Capital Markets analyst Rishi Jaluria said in a note Tuesday morning: "[W]e continue see the risk-reward skewing unfavorable with shares trading at a premium multiple," adding, "We remain cautious of US Commercial growth sustainability."

Palantir's outspoken CEO and co-founder Alex Karp gave a proverbial middle finger to doubters in comments during the company's earnings call.

Palantir co-founder and CEO Alex Karp. (Photo by Stefani Reynolds / AFP) (Photo by STEFANI REYNOLDS/AFP via Getty Images)

Palantir co-founder and CEO Alex Karp. (Photo by Stefani Reynolds / AFP) (Photo by STEFANI REYNOLDS/AFP via Getty Images) · STEFANI REYNOLDS via Getty Images

“[M]ost people involved in tech innovation now view Palantir as their ally,” Karp told analysts and investors.

“And so instead of going into every meeting saying, ‘Oh, yes, Palantir is great, but their fearless leader is bat s*** crazy, and he might go off to his commune in New Hampshire,’ whatever they were saying, it's now like, yes, the products are the best, and we have great products.”

Palantir, which was co-founded by conservative tech mogul Peter Thiel, has at times faced backlash for its partnerships with government agencies, including Immigration and Customs Enforcement (ICE) and the Israeli Defense Force (IDF).

Karp’s outspoken, often controversial remarks regarding the Middle East have sparked criticism, and its role as a supplier of AI war tech to the IDF has prompted some employees to leave the company.

Karp said on Monday's call the company looks to “bring violence and death to our [the United States’] enemies while making targeting and general issues of safety better for our allies and for Americans.”

Laura Bratton is a reporter for Yahoo Finance. Follow her on X @LauraBratton5.

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