Palantir Drops After a Blowout Q1—What Investors Should Know

Key Points

• Palantir stock dropped despite massive Q1 earnings beat and triple-digit revenue growth in key segments.
• Analysts are raising price targets while valuation concerns and Michael Burry’s short position weigh on sentiment.
• Strong government and commercial growth highlight long-term upside, but near-term volatility may persist.

Palantir Technologies NASDAQ: PLTR delivered a blockbuster Q1 2026 earnings report after the market closed on May 4. But 85% year-over-year (YOY) revenue growth and a Rule of 40 score of 145%, among other highlights, weren’t enough to cheer investors. PLTR dropped 7% the day after the report.

The predictable concern was the company’s valuation. The company delivered earnings per share of 33 cents. That was 5 cents above projections for 28 cents. The number was also 153% higher YOY. On a GAAP basis, the earnings beat was even more impressive. GAAP EPS of 32 cents was 325% higher YOY.

To put that in even more perspective, Palantir chief executive officer, Dr. Alex Karp, made this observation in his letter to shareholders, “Indeed, we generated nearly as much in profit in the first quarter of the year as we did in revenue only twelve months ago.”

This is key to reconciling the PLTR price. Analysts are projecting earnings growth of around 43% in 2026. The company is on pace to do far better than that. But critics of Palantir’s valuation only need to be right once. And at least the day after earnings, momentum was on their side.

Government and Commercial Growth Both Accelerate—A Rare Double

As in the past several quarters, Palantir registered strong growth on both the government and commercial sides of its business. U.S. commercial revenue grew 133% YOY to $595 million, and U.S. government revenue grew 84% YOY to $687 million.

It’s hard to understate the importance of this growth, as Palantir critics often continue to miss the massive growth story that’s occurring on the commercial side of the business. The company was born through its business with the U.S. government, but it’s become much more than that.

As the numbers show, both sides of the business continue to grow and grow strongly. In fact, Palantir raised its full-year outlook for both revenue and earnings. That’s impressive after the quarter it just posted.

Wall Street Is Raising Targets While Burry Shorts the CEO

The real signal for Palantir investors comes from the analyst community. Dan Ives of Wedbush was quick to reiterate its Outperform rating and $230 price target for PLTR. Rosenblatt Securities also reiterated a Buy rating and raised its price target from $200 to $225.

It’s worth noting that some analysts have been lowering their price targets on the stock. But in all cases, it would confirm a range-bound state that has been in place for much of this year. There’s also more news from one of Palantir’s favorite bears, Michael Burry, who says he is now outright shorting PLTR. However, Burry said he’s not just shorting the stock based on valuation, he’s “shorting the business model. I am shorting the entire premise upon which the company rests. I am shorting the CEO.”

This is a continuation of a feud that’s existed between Burry and Karp since the end of 2025 when Burry announced he had taken out put options against PLTR. The stock is down over 20% in 2026, and institutional selling outpaced buying in the first quarter. Some would say that proves Burry right. Others would reference a broken clock.

Is Palantir Being Punished for Its Past Success?

The reality of Palantir in 2026 is different than it was just a few years ago. Investors who expect the stock to climb 550% in the next five years, as it has in the last five years, will likely be disappointed. The company has a lot of growth priced into it.

But that doesn’t mean it’s not worth a premium valuation. Institutions will continue to own PLTR, and analysts (with some exceptions) continue to raise their price targets. It’s possible that PLTR will continue to chop around for 2026 while investors sort out the winners and losers in the AI software space.

But just as was the case in 2021 and 2022, that patience is likely to be rewarded for retail investors, many of whom are content to hold the stock after taking out their initial investment.

The Eye Test Still Matters—And Palantir Keeps Passing It

Palantir is a victim of the self-fulfilling prophecy. At this point, the critics have nothing more to say other than valuation, and they’re confident that at some point, that will be reflected in the stock price.

I’m not going to argue math with anyone. That’s like debating metrics like expected batting average or WAR+ with baseball purists.

But in sports, as in investing, the eye test still matters. Palantir isn’t going to make the cut for investors who focus solely on valuation. There are plenty of other stocks that they can own and still sleep at night.

However, the eye test is compelling. Look at it this way. If you had one player to send to the plate for one at-bat in a “gotta have it” moment, there are a lot of players who come to mind that wouldn’t check the boxes as a great hitter. But will you bet against them in the moment? Probably not.

That analogy works for Palantir on two levels. Palantir not only met the moment, it crushed it. Furthermore, it suggested that there’s even stronger growth to come, which almost doesn’t seem possible. And it would be dubious, except that Palantir has continued to do surprise quarter after quarter.

But it also illustrates what Palantir means to its customers on both the commercial and business sides. They rely on Palantir's Ontology to deliver the insights that they can't get in any other way.

It’s not a valuation darling. Its business model is misunderstood and, in some cases, misrepresented. But investors who are waiting for PLTR to get the analysts’ stamp of approval will be kept waiting. Meanwhile, the stock is likely to move higher over time.