Net profit surged nearly fourfold, and annual guidance was increased again! Palantir's (PLTR.US) US business had a "surge" in the first quarter, but commercial sales left regrets.

Palantir Technologies (PLTR.US) released a strong first-quarter financial report on Tuesday, with revenue increasing by 85% year-on-year to $1.63 billion, marking the highest growth rate since its listing in 2020; net profit nearly doubled; and full-year guidance was significantly raised. At the same time, commercial sales in the United States fell slightly below expectations, becoming the "shadow" in this financial report. As of the time of publication, the stock fell 2.53% in after-hours trading. Performance significantly exceeded expectations, with strong profit quality Palantir delivered a first-quarter performance in 2025 that far exceeded Wall Street's expectations. Revenue reached $16.3 billion, surpassing the market average expectation of $15.4 billion, with a year-on-year increase of 85%; adjusted earnings per share were $0.33, 18% higher than the market expectation of $0.28; net profit surged from $214 million in the same period last year to $870.5 million, nearly quadrupling. It is worth noting that this is the fastest quarterly revenue growth rate Palantir has achieved since its direct listing in 2020. CEO Alex Karp stated in a shareholder letter, "Our financial performance is strong enough to make any software company of this size in history pale in comparison." He also revealed that the company's annualized revenue per employee has reached $1.5 million. The company has strong profit quality. Adjusted net profit excludes the impact of stock incentives and income taxes, and even with the inclusion of some non-cash items, the company's actual profitability has significantly improved. At the same time, Palantir raised its full-year adjusted free cash flow guidance to $4.2-$4.4 billion, higher than the market expectation of $4.05 billion, and significantly higher than the range of $3.925-$4.125 billion given in February. U.S. market as "absolute growth engine", government business up 84% year-on-year This quarter, the U.S. market became an absolute growth engine, with revenue from the United States alone contributing $1.28 billion, accounting for 78.5% of total revenue, and U.S. business doubling in the past 12 months. 1. U.S. government business: Accelerating growth, strong defense demand U.S. government business revenue this quarter was $687 million, an 84% year-on-year increase, further accelerating from the 66% growth in the previous quarter. This performance easily surpassed analysts' expectations of $610.5 million. Palantir's relationship with the U.S. Department of Defense continues to deepen. In March, the Pentagon expanded its use of its Maven intelligent system, which can analyze battlefield data, assist in targeting and command decisions, and has been used to support U.S. military operations in Iran and the Middle East. Last year, the company also secured a 10-year, $10 billion Army contract. In addition, the Department of Homeland Security, the Department of Agriculture, and even the Immigration and Customs Enforcement (ICE) are all clients of Palantir. CEO Karp emphasized in a conference call, "When we believe that U.S. warfighters are in danger, we mobilize the entire company to respond." This strong focus on national security has enabled Palantir to secure numerous new contracts during the second term of the Trump administration. Trump himself also referred to Palantir as having "exceptional combat capabilities and equipment" on social media. 2. U.S. commercial business: Impressive growth but slightly below expectations Revenue from U.S. commercial operations this quarter was $595 million, a significant increase of 133%, but slightly lower than the market expectation of $605 million. Despite the difference being only about $10 million (less than 1.7%), in a market environment where expectations for high-growth stocks are demanding, this "miss" still attracted some attention. In terms of expanding commercial clientele, Palantir announced partnerships this quarter with giants such as Airbus, Bain Consulting, GE Aerospace, Stellantis, and NVIDIA Corporation (NVDA.US). By the end of March, the total number of commercial clients reached 1,007, a 31% year-on-year increase. The company also disclosed that in the quarter, it completed 206 transactions of at least $1 million, with 72 transactions exceeding $5 million, and 47 transactions exceeding $10 million. As of the end of March, the company's remaining performance obligations (contract revenue not yet recognized) were $4.45 billion, significantly higher than the $1.9 billion in the same period last year. Raising full-year guidance, expecting U.S. business to double again by 2027 Based on a strong start to the first quarter, Palantir has significantly raised its outlook for the full year: full-year revenue guidance has been raised from $7.182-$7.198 billion to $7.65-$7.66 billion, representing a year-on-year growth rate of approximately 71%; U.S. commercial revenue growth for the full year has been raised from 115% to 120%, corresponding to approximately $3.22 billion; and second-quarter revenue guidance is $1.8 billion, higher than the market expectation of $1.68 billion. It is worth noting that CEO Karp gave a long-term signal in an interview: he expects U.S. business (government + commercial) to double again by 2027. Calculated based on the current U.S. business annual revenue of approximately $5 billion, this guidance implies that in two years, the U.S. market alone will contribute over $10 billion in revenue. Karp strongly emphasized in a letter to shareholders the need to distinguish Palantir from pure AI model companies: "AI model companies are engaged in an extremely fierce competition - token costs have dropped by thousands of times in a few years, and winners and losers change every six months. Our path is different: We have built a powerful commercial machine that can deliver tangible results to partners in today's world." He emphasized that Palantir uses models from multiple suppliers, but still cannot meet the strong demand in the U.S. market. Concerns and challenges: Weakness in commercial sales, intensifying competition, and stock price decline within the year Despite the impressive numbers, there are still several signals in the financial report that are worth being cautious about. U.S. commercial sales have consistently fallen short of expectations. This quarter is not the first time Palantir has "missed the mark" on commercial revenue, and the market is highly sensitive to this indicator. Although a 133% growth rate is already remarkable, managing expectations becomes crucial - if commercial sales continue to fall below expectations in subsequent quarters, it could undermine the market's support for its high valuation. Competition pressure is increasing. HSBC issued a warning before the financial report that as AI technology lowers the barrier to entry, competitors (such as traditional software giants and emerging AI companies) are accelerating the launch of similar data analysis and operational decision platforms. Palantir has historically had a high conversion cost due to its "ontology-based" architecture, but the popularity of AI may weaken this moat. In addition, model companies like Anthropic and OpenAI are also penetrating the enterprise side, and although Karp is trying to draw a clear line, the battle for customer budgets is inevitable. The stock price has fallen by 18% within the year, and the market is pessimistic about the software sector as a whole. Despite Palantir's cumulative increase of about 23 times since the end of 2022 and a still 15%-18% increase from 2025 to present, the stock price has actually fallen by 18% within the year before the release of this financial report. The reason is that investors are generally concerned that AI models will disrupt the traditional software business model, leading to a sell-off in the entire software sector. As one of the stocks with extreme gains in the sector, Palantir has faced some profit-taking pressure. Political and ethical controversies persist. Palantir is highly tied to the U.S. government - especially the Department of Defense and immigration enforcement. Its technology is used for sensitive operations such as deportations and monitoring, attracting a lot of criticism. Some pension funds and members of Congress have called for divestment. While this "patriotic" stance has won government contracts, it also exposes the company to reputational risks after the ESG investment trend subsides.