Palantir Posts Record Results and Raises Guidance, but Valuation Still Stretched

What happened

Palantir reported third-quarter results that exceeded expectations, with revenue surpassing the $2.16 billion upper end of guidance and marking the company's first time crossing $2 billion in quarterly revenue. Management also raised full-year revenue and profitability forecasts for the third time in 2026, citing accelerating U.S. commercial demand and robust government contract activity. The stock jumped on the news, extending its rebound from the summer sell-off and pushing its valuation to even more extreme levels relative to earnings and sales. However, the 10-Q filing reveals that remaining performance obligations remain far below headline deal metrics, and management continues to caution that revenue from large contracts may be subject to options, renegotiations, and customer ability to pay. While the business is executing exceptionally well, the market is pricing in near-perfect execution with no margin for error.

Implication

The short-term momentum is strong, and the raised guidance confirms that Palantir is capturing significant AI deployment demand, but the stock now trades at over 58 times forward sales and 150 times earnings, which leaves little room for any growth slowdown or conversion hiccup. The key metric to monitor is U.S. commercial RDV, which management reported at $6.238 billion last quarter; if it fails to grow above $6.5 billion in the current quarter, it would signal that backlog burn is replacing fresh demand. The gap between headline total contract value and recognized revenue remains a concern, as the company's own disclosures acknowledge that many contracts are cancellable and revenue may not be fully realized. For long-term investors, the better strategy is to wait for a pullback toward the $155 entry level identified in our analysis, where the valuation would be more aligned with the company's strong but still uncertain growth trajectory. Aggressive traders may ride the momentum, but position sizing should reflect the potential for a sharp derating if growth decelerates or if the company's conversion metrics disappoint in the next quarter.

Thesis delta

The investment thesis shifts slightly upward in terms of near-term execution confidence, as the company delivered a strong beat and raised guidance, validating the bull case on demand. However, the valuation has become even more extended, reinforcing our view that the stock is overpriced relative to the underlying uncertainty in revenue conversion and contract durability. Our overall rating remains WAIT, with no change to the attractive entry level of $155, but we acknowledge that the probability of the bull scenario has increased modestly.