Palantir's High Margins Contrast with Snowflake's Cash Burn in AI Earnings, Yet Valuation Remains Extreme

What happened

Palantir and Snowflake's recent earnings reports highlight divergent strategies in the AI stack, with Palantir showcasing strong profitability. The article notes Palantir is 'printing cash at 51% margins,' corroborating the DeepValue report's data on 82% gross margins and 63% YoY revenue growth in Q3-25. In contrast, Snowflake is burning through cash, emphasizing the competitive dynamics between application-focused and infrastructure-focused AI players. However, the DeepValue report critically points out that Palantir's stock trades at ~392x P/E and is ~589% overvalued based on a DCF model, embedding hyper-growth expectations. This narrative underscores that despite operational success, Palantir's equity is priced for perfection, leaving investors vulnerable to multiple compression or operational setbacks.

Implication

The immediate implication is that Palantir's stock may remain volatile or decline if growth falters, given its sky-high multiples and the market's unforgiving stance on any disappointment. Long-term, sustaining 40%+ CAGR to justify current prices faces headwinds from regulatory clampdowns in sensitive domains like defense and healthcare, which could curtail key contracts. Competitors, including hyperscalers, threaten to erode Palantir's switching-cost moat over time, potentially pressuring margins and growth. For conservative investors, the negative margin of safety and STRONG SELL recommendation suggest avoiding new capital until a significant price correction or sustained outperformance materializes. Ultimately, monitoring regulatory developments, contract renewals, and AIP scalability is crucial, as per the report's watch items, to gauge any shift in risk-reward dynamics.

Thesis delta

The new article reinforces Palantir's profitability narrative, which is already reflected in the DeepValue report's assessment of high-quality fundamentals. However, it does not alter the core thesis of overvaluation; the STRONG SELL stance remains unchanged as valuation metrics remain extreme and risks like regulatory scrutiny and competition persist. Investors should view this as confirmation of the report's critical view, emphasizing that strong operational performance alone cannot offset pricing risks at current levels.