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Palantir (PLTR) delivered a strong Q2 2025 with robust U.S. growth, margin expansion, and raised guidance, but faces international softness and competitive risks.

# Palantir Delivers Standout Q2 2025: Volume-Driven Growth and Margin Expansion Power Guidance Raise

---

## Executive Summary

- **Palantir Technologies (PLTR) delivered a robust Q2 2025, beating expectations on both revenue and EPS.** Revenue reached **$1.004 billion** (up 48% YoY), and GAAP EPS came in at **$0.13** (adjusted EPS: $0.16), both ahead of consensus. The beat was driven by **exceptional volume growth**—notably a 93% YoY surge in U.S. commercial revenue and a 43% increase in customer count.
- **Earnings quality was strong, with significant margin expansion.** Adjusted operating margin rose to **46%** (from 37% YoY), and net margin improved to 33%. Free cash flow margins were also impressive at 57%, reflecting disciplined cost controls and operational leverage.
- **Management struck a bullish tone,** highlighting the transformative $10B U.S. Army contract, record TCV bookings (up 140% YoY), and accelerating AI platform adoption. Full-year 2025 guidance was raised across revenue and free cash flow, signaling confidence in sustained momentum.
- **Risks remain,** particularly a 3% YoY decline in international commercial revenue and intensifying competition from major AI players. Analyst sentiment is neutral, with price targets below current levels, suggesting some skepticism around valuation and international execution.
- **Catalyst watch:** The market is likely to react positively to the raised guidance and strategic wins, but investor focus will remain on international performance and competitive dynamics. Upcoming catalysts include further U.S. government contract announcements and updates on AI platform adoption.

---

## Performance Snapshot

| Metric                | Reported   | Consensus | Surprise | YoY Change |
|-----------------------|------------|-----------|----------|------------|
| Revenue               | $1.004B    | $0.985B   | +$0.019B | +48%       |
| GAAP EPS              | $0.13      | $0.12     | +$0.01   | +N/A       |
| Adjusted EPS          | $0.16      | $0.12     | +$0.04   | +N/A       |
| U.S. Commercial Rev.  | +93% YoY   |           |          | +93%       |
| Customer Count        |            |           |          | +43%       |
| TCV Bookings          |            |           |          | +140%      |
| Net Dollar Retention  | 128%       |           |          | +N/A       |
| Adjusted Op. Margin   | 46%        |           |          | +900bps    |
| Free Cash Flow Margin | 57%        |           |          | +N/A       |

---

## Earnings Quality

Palantir’s Q2 2025 results reflect **high-quality earnings** underpinned by a favorable revenue mix and robust margin expansion. The company’s growth was **predominantly volume-driven**, with U.S. commercial and government segments leading the way. The **operating margin improvement** (adjusted: 46%, GAAP: 27%) and **net margin of 33%** highlight effective cost management and operational leverage. Free cash flow generation was particularly strong, with a 57% margin, indicating that growth is translating into real cash returns. There is no evidence of one-off revenue recognition or aggressive accounting; rather, the results point to sustainable, recurring business.

---

## Management Commentary & Guidance

Management’s tone on the earnings call was **decisively bullish**. Leadership emphasized the strategic significance of the $10B U.S. Army contract, record TCV bookings, and accelerating adoption of Palantir’s AI platform. **Full-year 2025 guidance was raised**: revenue is now expected at **$4.142–$4.150B** (up from prior guidance), U.S. commercial revenue at **>$1.302B**, and adjusted free cash flow at **$1.8–$2.0B**. The guidance is **measured and realistic**, reflecting confidence in continued volume growth and operational efficiency, without relying on aggressive assumptions.

---

## Key Risks

- **International Weakness:** A 3% YoY decline in international commercial revenue signals potential challenges in overseas markets.
- **Competitive Pressures:** Ongoing Pentagon AI tests with Microsoft/OpenAI and other large tech players could erode Palantir’s government and commercial share.
- **Valuation Disconnect:** Analyst consensus remains neutral, with price targets below current levels, suggesting the market may be overvaluing near-term U.S. momentum while underestimating international and competitive risks.

---

## Expected Market Reaction

Analysts and investors are likely to **respond positively** to Palantir’s raised guidance, strong margin performance, and strategic contract wins. However, **caution may persist** due to international revenue softness and concerns about sustainability of growth amid rising competition. The market may also reassess valuation in light of the company’s lower ROE (4.11%) compared to peers and fading retail investor enthusiasm.

---

## Final Takeaway

**Palantir’s Q2 2025 was a strong quarter, marked by volume-driven growth, margin expansion, and strategic contract wins.** The market may be underappreciating the long-term benefits of Palantir’s cost efficiencies and customer retention, while overvaluing short-term U.S. commercial momentum. **Key upcoming catalysts** include further U.S. government contract announcements and updates on AI platform adoption. Investors should watch for signs of international stabilization and competitive developments as the next phase of the Palantir growth story unfolds.

Palantir Q2: U.S. Strength, Margins Up, Guidance Raised

Palantir (PLTR) is set for a strong Q2 earnings beat, driven by accelerating commercial growth, rapid AI platform adoption, and expanding margins, with upside potential if AI integration continues to outpace expectations.

# Palantir Technologies Inc.: Accelerating Commercial Momentum and AI Integration Set the Stage for a Strong Q2 Earnings Beat

## Executive Summary

We are **bullish** on Palantir Technologies Inc. (PLTR) heading into the Q2 FY2025 earnings release. The company’s **Q1 FY2025 revenue of $883.9M** and **Q2 guidance of $934M–$938M** signal a clear acceleration, underpinned by a **39% YoY customer count increase** and a sharp rise in U.S. commercial revenue. Operating leverage is improving, with **GAAP operating margin up to 20%** (from 13% YoY) and adjusted operating margin at 44%. The market may be underestimating the near-term impact of Palantir’s rapid AI platform (AIP) adoption, which is driving both deal size and margin expansion. However, investors should monitor the company’s ongoing reliance on government contracts, which remains a key risk if budgetary priorities shift.

## Recent Trends Signal What’s Next

Palantir’s last two quarters have demonstrated a clear inflection in both top-line growth and profitability. **Q1 FY2025 revenue grew 21% YoY** and 8% QoQ, while U.S. commercial revenue surged 71% YoY. Margins are expanding: **GAAP operating margin improved from 13% to 20% YoY**, and net margin is trending higher as well. EPS has consistently beaten consensus, with Q1 FY2025 at **$0.08** (vs. $0.05 a year ago). The following table summarizes the last four quarters, highlighting the positive trajectory:

### Quarterly Financial Trends

| Quarter      | Revenue ($M) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------------|---------|
| Q2 FY2024    | 642.4        | 80               | 13                   | 12            | 0.05    |
| Q3 FY2024    | 743.2        | 81               | 15                   | 14            | 0.06    |
| Q4 FY2024    | 836.5        | 82               | 18                   | 16            | 0.07    |
| Q1 FY2025    | 883.9        | 83               | 20                   | 18            | 0.08    |

**Trend:** Revenue and margins are rising sequentially, with EPS expanding in tandem—setting a strong base for Q2.

## Management’s Forward Tone and Positioning

Management’s Q1 FY2025 commentary was notably confident, with CEO Alex Karp stating, **“We’re seeing incredible momentum in our U.S. commercial business and are very, very optimistic about the rest of the year.”** This is a marked shift from the more cautious tone in late FY2024, when management cited “uncertainty in government procurement cycles.” The Q2 guidance was raised, and management highlighted “record pipeline visibility” and “unprecedented demand for AIP.” This forward-leaning tone, coupled with explicit guidance, signals high conviction in near-term outperformance.

## KPI Trends & Upcoming Quarter Drivers

Three KPIs are most relevant for Q2:

- **Customer Count:** Up **39% YoY** and **8% QoQ** (from 497 to 537), supporting sustained revenue growth.
- **Large Contract Wins:** 139 deals over $1M in Q1, with U.S. commercial TCV up **183% YoY** and remaining deal value (RDV) up **127% YoY**.
- **Deferred Revenue:** Increased by **$59M QoQ** to $1.1B, indicating strong future revenue visibility.

### KPI Movement Table

| KPI                   | Q1 FY2024 | Q4 FY2024 | Q1 FY2025 | YoY Change | QoQ Change |
|-----------------------|-----------|-----------|-----------|------------|------------|
| Customer Count        | 386       | 497       | 537       | +39%       | +8%        |
| U.S. Commercial TCV   | $150M     | $320M     | $425M     | +183%      | +33%       |
| Deferred Revenue ($M) | 900       | 1,041     | 1,100     | +22%       | +6%        |

**Implication:** These KPIs point to continued revenue acceleration and margin expansion in Q2, with upside risk if AIP adoption further accelerates.

## Missed by the Street

A key overlooked signal is the **rapid integration of generative AI (AIP) into Palantir’s core platforms**. Management noted, **“AIP investments are on fire,”** suggesting that the company is seeing faster-than-expected adoption and monetization. This could drive a richer revenue mix and higher margins, as AIP deals tend to be larger and more profitable. Additionally, a footnote in the Q1 10-Q revealed a **notable reduction in stock-based compensation as a percentage of revenue** (down 200bps YoY), which could further boost reported EPS ahead of consensus.

## Scenarios for the Upcoming Quarter

### Q2 FY2025 Scenario Table

| Scenario | Total Revenue ($M) | EPS ($) | GAAP Operating Margin (%) | Key Assumptions                                             |
|----------|--------------------|---------|--------------------------|-------------------------------------------------------------|
| Bull     | 945                | 0.10    | 22+                      | Accelerated AIP adoption, larger deal sizes, low churn      |
| Base     | 936                | 0.08    | 20                       | Steady commercial growth, stable government contracts       |
| Bear     | 930                | 0.06    | 18–19                    | Slower commercial uptake, regulatory headwinds, cost creep  |

**Most Likely:** The **Base case** is most probable, given current pipeline visibility, management’s confidence, and recent KPI trends. However, the Bull case is increasingly plausible if AIP momentum continues.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter      | Revenue ($M) | EPS ($) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|---------|------------------|----------------------|
| Q2 FY2024    | 642.4        | 0.05    | 80               | 13                   |
| Q3 FY2024    | 743.2        | 0.06    | 81               | 15                   |
| Q4 FY2024    | 836.5        | 0.07    | 82               | 18                   |
| Q1 FY2025    | 883.9        | 0.08    | 83               | 20                   |

### KPI Movement Table

| KPI                   | Q1 FY2024 | Q4 FY2024 | Q1 FY2025 | YoY Change | QoQ Change |
|-----------------------|-----------|-----------|-----------|------------|------------|
| Customer Count        | 386       | 497       | 537       | +39%       | +8%        |
| U.S. Commercial TCV   | $150M     | $320M     | $425M     | +183%      | +33%       |
| Deferred Revenue ($M) | 900       | 1,041     | 1,100     | +22%       | +6%        |

### Key Management Quotes

1. **“We’re seeing incredible momentum in our U.S. commercial business and are very, very optimistic about the rest of the year.”**  
   *Q1 FY2025 Earnings Call*  
   *Signals high confidence in near-term growth.*

2. **“AIP investments are on fire.”**  
   *Q1 FY2025 Earnings Call*  
   *Implies rapid AI adoption could drive upside surprise.*

3. **“We have record pipeline visibility and expect continued deal flow in Q2.”**  
   *Q1 FY2025 Earnings Call*  
   *Suggests strong revenue visibility for the next quarter.*

4. **“We are seeing early signs of normalization in government procurement cycles.”**  
   *Q1 FY2025 Earnings Call*  
   *Indicates potential stabilization in government segment.*

5. **“We expect adjusted operating margins to remain at or above 44%.”**  
   *Q1 FY2025 Earnings Call*  
   *Points to sustained profitability improvements.*

6. **“Stock-based compensation as a percentage of revenue continues to decline.”**  
   *Q1 FY2025 10-Q*  
   *Could drive EPS outperformance versus consensus.*

7. **“We are monitoring regulatory developments in Europe closely.”**  
   *Q1 FY2025 Earnings Call*  
   *Highlights a potential risk to international growth.*

---

**In summary:** Palantir is entering Q2 FY2025 with strong commercial momentum, expanding margins, and a robust AI-driven pipeline. The company’s upbeat management tone and improving KPIs support a bullish outlook, with upside risk if AIP adoption continues to accelerate. Investors should watch for execution on commercial deals and any shifts in government contract dynamics.

Palantir (PLTR): AI Momentum Drives Q2 Upside