Palantir's Government AI Revenue Surge Confirms Growth but Amplifies Valuation Concerns

What happened

The Motley Fool article promotes Palantir as a prime play on U.S. government AI spending, citing a 66% surge in U.S. government revenue in Q4 2025. This aligns with Palantir's Q4 2025 results, where overall revenue grew 70% year-over-year to $1.407B, driven by 137% growth in U.S. commercial revenue and a Rule-of-40 score of 127%. However, the DeepValue report critically notes that Palantir's stock, at ~$158 per share, trades at extreme multiples like a P/E of 341x, fully pricing in sustained hypergrowth above 60% and elite margins near 55-60%. The report highlights significant risks, including political exposure from controversial contracts with agencies like ICE and HHS, heavy U.S. concentration with 77% of Q4 revenue from the U.S., and flat international growth. Despite the operational momentum, the report maintains a 'POTENTIAL SELL' rating, warning that any deceleration below 40% growth or margin compression could trigger severe multiple compression due to the lack of valuation margin of safety.

Implication

The near-term boost from government AI spending supports revenue, but Palantir must consistently achieve its aggressive 2026 guidance of 61% growth and ~57.5% margins to justify lofty multiples. Any failure to meet these targets, even a modest step-down, could lead to sharp de-rating given the embedded expectations and crowded market sentiment. Political and regulatory headwinds, such as contract cancellations or scrutiny over controversial deployments, pose material threats to high-margin government revenue, which comprises 55% of total sales. With international diversification weak and growth lagging, the company's reliance on U.S. markets increases vulnerability to domestic policy shifts and competitive pressures. Therefore, while the business demonstrates strong cash flow and product-market fit, the risk-reward skews negative at current prices, suggesting investors trim exposure or wait for a reset closer to $110 per share.

Thesis delta

The news article echoes Palantir's growth narrative but overlooks the critical valuation and risk factors detailed in the DeepValue report. No fundamental shift in the thesis occurs; the core view remains that investors should avoid new purchases until growth sustainability is proven and diversification improves, as the stock is priced for perfection with asymmetric downside.