AI demand generates ‘phenomenal’ quarter for tech firm
The data analytics and software group beat expectations, reporting its first $1 billion quarter for revenues. The tech winner is up over 600% in a year.
5th August 2025 15:48
by Graeme Evans from interactive investor
A “phenomenal” quarter by Palantir Technologies Inc Ordinary Shares - Class A (NASDAQ:PLTR) today sent its shares to new heights amid the latest results boost for Wall Street’s ongoing AI investment story.
The data analytics and software group rose another 9% at today’s opening bell to trade at $175, having last night smashed expectations with its first-ever billion dollar quarter for revenues.
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The shares have more than doubled this year and are up by more than 600% in a year.
Underlining its status as one of the tech sector’s big AI winners, Palantir posted an acceleration in revenues growth for the eighth quarter in a row. This was fuelled by a 93% year-on-year surge in US commercial contracts and 53% rise in government work.
The performance has been accompanied by an adjusted operating margin of 46%, which led to a better-than-expected earnings per share figure of 16 US cents.
Co-founder and chief executive Alex Karp called the three months to 30 June a phenomenal quarter as the company continued to see “the astonishing impact of AI leverage”.
He added in a letter to shareholders: “For a start-up, even one only a thousandth of our size, this growth rate would be striking, the talk of the town.
“For a business of our scale, however, it is, we continue to believe, nearly without precedent or comparison.
“The software industry for years was judged by what many called the Rule of 40 — the view that the sum of the rate of growth in the revenue generated by a compelling software firm plus its profit margin should be greater than 40%. Ours is now 94%.”
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Morgan Stanley lifted its price target to $155, which represents a multiple of 110 times forecast 2027 free cash flow of $4.15 billion.
It highlighted Palantir’s much higher efficiency as measured by revenue growth and operating margin, which at 91% for 2027 is significantly better than than the large-cap average of 44%.
The bank added: “Wow… is our reaction to Q2 results with nearly every headline metric and KPI accelerating versus Q1, which itself was a very strong quarter.
“As Gen AI has captured the collective mindset of tech and society at large over the last few years, it now seems as little coincidence that Palantir has just reported eight straight quarters of accelerating year-on-year growth.”
Jacob Falkencrone, Saxo’s global head of investment strategy, called Palantir’s valuation “stratospheric” at roughly 80 times projected next year revenue and a price/earnings level of 239 times — far surpassing the peaks of historic high-flyers such as Tesla Inc (NASDAQ:TSLA), Alphabet Inc Class A (NASDAQ:GOOGL) or Salesforce Inc (NYSE:CRM).
He warned that an over-reliance on the US market and vulnerability to changes in government policy were among reasons for investors to tread carefully.
Falkencrone added: “The higher Palantir climbs, the less room it has for error. Missteps in new customer acquisition, slower-than-anticipated AI adoption, or competitive disruptions could spark severe revaluation.”
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Last night’s results continue a forecast-beating earnings season for the tech sector amid strong performances by five of the Magnificent Seven. Tesla missed guidance and NVIDIA Corp (NASDAQ:NVDA) has yet to report.
UBS Global Wealth Management said key moments so far included last Wednesday’s results by Meta Platforms Inc Class A (NASDAQ:META), which offered a stronger-than-expected revenue forecast for the current quarter as AI continues to power the Facebook owner’s core advertising business.
Microsoft Corp (NASDAQ:MSFT), meanwhile, forecast a record $30 billion in capital spending for the current quarter as its cloud business grew faster than analysts had expected.
Apple Inc (NASDAQ:AAPL) added to this trend by reporting an earnings beat for the three-month period, with its revenue growing at the fastest pace since December 2021.
UBS said more companies had surpassed expectations than fallen short, with currency-related tailwinds playing a role in driving strong headline beats.
It added: “Without taking any single-company views, recent earnings are in line with our positive overall view on the structural growth of AI for the tech sector.”
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