Palantir Stock Drops Despite Stellar Earnings: What's Next?

Key Points

• Despite a strong earnings report, Palantir's stock dropped over 9%, raising questions about whether this is the beginning of the end for its bull market or just a temporary pause.
• Key financial highlights include a revenue increase of 39% year over year, with significant growth in U.S. and government revenue, and raised full-year revenue guidance to $3.9 billion.
• Analysts remain optimistic, projecting a potential one-trillion market cap within the next two to three years, suggesting long-term growth potential despite current volatility.

It would be hard to blame investors for being excited about the Palantir Technologies Inc. NASDAQ: PLTR earnings report. The stock has been the best-performing stock in 2025, delivering a return of over 60% since January.

However, after a strong earnings report in which the company beat on revenue and raised its full-year guidance on both its government and commercial segments, PLTR stock dropped over 9%. 

This may have the stock's critics chuckling about the overvalued stock. With a price-to-earnings (P/E) ratio of over 600x, it’s fair to ask if this is the beginning of the end for the Palantir bull market or a pause before the next leg up.

Skeptics Focus on Future Earnings Growth

Investors can find bad news in almost any earnings report if they look closely enough. Regarding Palantir, the “bad news” is that earnings growth is expected to slow for the remainder of 2025.

Remember, the market acts as a discounting mechanism, so investors want to ensure they’re not overpaying for Palantir’s future earnings. That was more than enough reason for them to take a little profit.

Palantir Delivers Dessert Before Dinner, Both Were Delicious

In the last hour of trading before the company’s earnings report, Palantir stock climbed to an all-time high (ATH). That gave investors a sweet treat before what many analysts believed would be a strong report.

It’s easy to see why investors might expect PLTR stock to keep climbing into uncharted territory. However, it seems that some investors had other ideas. In what may be called an old-fashioned rug pull, investors took profits and sent the stock plummeting. 

But does this mean Palantir delivered an unappetizing dinner? Not at all. But sugar highs only last so long, and Palantir is a casualty of that crash. Here’s what Palantir shareholders will be digesting in the coming days: 

• Revenue of $883 million; a 39% year-over-year (YOY) increase

• U.S. revenue of $628 million; a 55% YOY increase

• Government revenue of $373 million; a 45% YOY increase

• Adjusted operating income of $390.7 million; 8.2% higher than analysts' estimates

• Operating margin of 19.9%, up from 12.8% YOY

• 139 deals closed of at least $1 million or more

• $5.48 billion in cash with no debt

And if that wasn’t enough, Palantir also raised its full-year revenue guidance to $3.9 billion at the midpoint from $3.75 billion. 

Government Revenue Shows No Signs of Slowing

A few years ago, skeptics were concerned about Palantir’s lack of commercial customers. However, Palantir is generating strong enterprise growth. This leads analysts to question the growth of its largest customer, the federal government.

This is an example of why one might call Palantir a “Yeah but” stock. For every objection it overcomes, another objection pops up.

In this case, the company may have put any concerns over the company’s business being impacted by cuts to federal spending to rest. Two key examples in this quarter were:

• A $30 million contract for ICE

• An IRS data project (scope unknown)

• A partnership with NATO

And those announcements were in addition to the company’s Titan program with the U.S. Army, which the Army rated as one of its “highest-performing” programs.

Don’t Let Traders Dictate Your Investment Decisions

Palantir is a volatile stock, even among technology stocks known for volatility. That won’t change as long as it trades at such a premium price. That also means it’s going to attract many traders who are looking to make quick profits. 

For long-term investors, that kind of price volatility can be unsettling. At one point in 2025, PLTR stock dropped over 20%, and it looked like the analysts with a fair market value of around $48 for Palantir might win the day. 

But when the market began to rally, money quickly flowed back into Palantir stock. But what comes next? Investors should continue to expect volatility. However, long-term investors should tune out the noise and focus on where the company will likely be in five years. 

One analyst, Dan Ives of Wedbush, raised his price target on Palantir from $120 to $140 and predicted that it will have a one-trillion market cap within the next two to three years. If that’s the case, PLTR stock will easily grow into its current valuation, and the stock price will likely be much higher.