EN
The Biggest Takeaway From Palantir Technologies’ Latest Quarterly Report Is a Potential Warning Sign Investors Shouldn’t Miss
Key Points
Palantir witnessed a significant slowdown in the growth of its total contract value in Q3.
Although the company's revenue and earnings are increasing at a solid pace and it has raised its guidance, it needs to strengthen its revenue pipeline to sustain healthy growth in the long run.
Palantir Technologies (NASDAQ:PLTR) has been at the forefront of the artificial intelligence (AI) software revolution over the past three years, with the company's AI platform in solid demand from both commercial and government customers.
So, when Palantir released its third-quarter results on Nov. 2, it was easy to see why the company's revenue and earnings grew at an incredible pace. What's more, Palantir raised its full-year guidance once again, driven by the exceptional growth in the company's U.S. commercial business.
Missed AI’s "Act 1"? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we’re only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »
However, Palantir stock slid following its earnings report. Let's see why that was the case and examine a potential red flag that could derail the company's impressive growth trajectory.
Image source: The Motley Fool.
Palantir's quarterly performance was solid, but there is a problem
Palantir's Q3 revenue increased by 96% year over year to $2.3 billion. This was the first time its quarterly revenue crossed the $2 billion milestone. Even better, the company's adjusted earnings per share (EPS) increased by 109% year over year to $0.44. Palantir's revenue and earnings exceeded Wall Street's expectations.
Palantir benefited from the persistently strong demand for its Artificial Intelligence Platform (AIP), which is helping it win more business from existing customers. Management pointed out several instances during the company's latest earnings call in which customers have awarded Palantir larger contracts following the initial deployment of its AI solutions.
For instance, Palantir noted that a "global athletic company converted a $1.6 million pilot that began in Q1 2026 into an approximately $21 million ACV deal last quarter," where ACV refers to the annual contract value. Management outlined several other examples, indicating that the benefits delivered by Palantir's AI software platform are boosting demand.
This also explains why Palantir increased its annual revenue guidance once again. It now expects $8.53 billion in revenue for 2026, driven by a 143% increase in U.S. commercial revenue to $3.56 billion. The updated guidance implies a 91% increase in Palantir's top line, which would be an improvement over its 2025 growth of 56%.
Meanwhile, the company anticipates adjusted free cash flow of $4.8-$5 billion this year, significantly higher than last year's $2.27 billion. So, there are a lot of positive takeaways from Palantir's latest quarterly report. However, a sharp slowdown in new contracts marred the company's impressive performance and strong guidance.
Palantir closed $2.92 billion in total contract value (TCV) last quarter, an increase of just 6% from the prior year. Its U.S. commercial TCV increased by 11% year over year to $1.46 billion. This represents a significant slowdown from the year-ago period when Palantir's TCV increased by a whopping 151%.
Even in the second quarter this year, Palantir posted a respectable year-over-year increase of 49% in TCV to $3.37 billion. Its U.S. commercial TCV rose 153% to $2.13 billion in Q2. This significant slowdown in Palantir's TCV growth isn't good news for the company. Though the company has a solid revenue pipeline, slower contract growth means the pipeline will be depleted quickly once it starts working through the existing backlog.
Palantir ended the previous quarter with total remaining deal value (RDV) of $13.4 billion, up 55% from the prior year. RDV refers to the total value of contracts that Palantir is yet to fulfill at the end of a quarter. For comparison, Palantir's RDV increased by 83% year over year in Q2 to $13.1 billion, suggesting that its revenue pipeline growth has slowed.
What should investors do?
There is no doubt that Palantir's financial performance was impressive last quarter, and the improved guidance suggests that it can sustain its solid growth. However, the sudden drop in TCV growth is a cause for concern. While government contracts may take time to materialize, the slowdown in U.S. commercial contracts could hurt Palantir's growth.
Its U.S. commercial revenue growth of 148% was well ahead of the 11% growth in TCV. If Palantir's TCV growth -- especially on the commercial side -- doesn't pick up, then the company may find it difficult to sustain its elevated growth rate over the long run.
Of course, it would be wrong to jump to a conclusion about this AI stock's potential based on just one quarter's data. AI software spending is likely to remain solid over the long run, so I won't be surprised to see Palantir's revenue pipeline grow at a solid clip once again in the future. However, Palantir is an expensive stock that trades at 124 times earnings and 62 times sales.
The company can't afford to show any signs of weakness and needs to keep growing faster than market expectations to justify its valuation. As a result, investors may consider adopting a wait-and-see approach to determine whether the recent slowdown in Palantir's contract growth is just a blip or a bigger problem.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.