Shares of Palantir Technologies (PLTR) experienced a significant decline on Tuesday, falling by 12%, as investors reacted to the company’s first-quarter 2025 earnings report.
Despite Palantir exceeding overall revenue forecasts and reporting strong growth in its United States segments, market focus centered on weakness in the international commercial business and ongoing scrutiny regarding the stock’s high valuation.
Understanding Palantir Technologies
Palantir Technologies is a software company specializing in data analytics and artificial intelligence platforms. Known for its complex work with both government and commercial clients, Palantir develops software like Gotham (primarily for government defense and intelligence) and Foundry (for commercial and government organizations to integrate and analyze data).
The company’s work often involves handling sensitive data and providing tools for decision-making across various sectors, from supply chain management to national security.
Q1 2025 Earnings: A Mixed Picture
Palantir’s first-quarter 2025 earnings report presented a nuanced view of the company’s performance. Overall, Palantir reported revenue of $884 million for the period ending March 31st, which surpassed Wall Street analysts’ expectations of $863 million. The company’s earnings per share (EPS) came in at $0.13, which was in line with analyst estimates.
Digging deeper into the results revealed strong performance in the United States, with the US commercial business seeing a substantial 71% jump in revenue and the company’s revenue from US government contracts climbing by 45%. This growth in its domestic market indicated healthy demand for its AI software and data platforms within the U.S.
International Commercial Segment Struggles
In contrast to the robust growth in the US, Palantir’s international commercial segment showed signs of struggle. Revenue from this segment, which focuses on selling software to businesses abroad, posted a 5% decline in the first quarter compared to the prior year, coming in at $142 million.
This figure fell below the $160 million expected by Wall Street analysts, representing a miss in a key growth area. Geographic breakdown further highlighted this international weakness, with Europe’s share of Palantir’s total revenue decreasing from 16% in the first quarter of 2024 to 10% in the most recent quarter.
Exploring Reasons for International Headwinds
Both company executives and analysts offered potential explanations for the headwinds in the international commercial segment, particularly in Europe. Palantir CEO Alex Karp commented on the company’s post-earnings conference call, stating, “Europe doesn’t get AI yet,” suggesting a slower pace of adoption for large-scale AI investments in the region compared to the US and China.
Palantir executives have noted difficulties in the European market since 2023, linking it to the region being slower to embrace significant AI infrastructure investments and facing challenges like slowing GDP growth. Analyst Gil Luria echoed this, stating that Europe appears to have “fallen well behind the US and China who have invested hundreds of billions in AI infrastructure.”
Furthermore, Luria suggested that the growing trend among European businesses to seek “tech sovereignty” by prioritizing spending on homegrown AI tech firms could be impacting demand for US providers like Palantir. He also posited that Palantir’s perceived “alignment with the Trump administration” might be a potential issue for some European buyers, adding a political dimension to the sales challenges.
The Persistent Valuation Question
Despite the overall revenue beat and strong US growth, concerns about Palantir’s valuation weighed heavily on the stock. Analysts like Brent Thill from Jefferies maintained an “Underperform” rating on shares, arguing that while fundamentals had strengthened, Palantir’s valuation had risen to “unprecedented levels.” Thill specifically called the valuation “irrational” at 56 times the consensus estimate for the company’s 2026 calendar year revenue.
High revenue multiples indicate that investors are pricing in very aggressive future growth, and any signs of weakness or slowdown in a key segment, such as international commercial, can lead to a significant correction in the stock price when that valuation is perceived as stretched.
US Government Business and Political Connections
While the international commercial segment faced difficulties, Palantir continued to see strong performance in its US government business, reporting 45% growth. The company has a history of securing significant contracts with the US government, including work related to defense and intelligence.
Notably, Palantir was recently awarded a $30 million contract with ICE related to surveilling immigrants, a contract that has drawn controversy and raised concerns over potential rights violations, leading to backlash from some former employees. The company was also awarded a $178 million contract by the US Army in March to develop AI software for military trucks.
Palantir CEO Alex Karp has publicly expressed admiration for aspects of the Trump administration’s approach, having called Trump “brilliant” and applauded his cost-cutting agenda via the newly created Department of Government Efficiency (DOGE). While Palantir’s US government contracts remain a strong area, the visibility and nature of some of these deals, combined with perceived political connections, remain points of discussion and scrutiny.
Raised Full-Year Outlook
Adding another element to the earnings picture, Palantir also updated its financial outlook for the full year 2025. The company raised its revenue forecast to a range between $3.89 billion and $3.9 billion, up from its prior estimate of $3.75 billion. This upward revision indicates that despite the challenges faced in certain segments during Q1, Palantir remains confident in its ability to achieve higher overall revenue growth for the full fiscal year, likely driven by continued momentum in its stronger performing segments.
Stock Performance Context
Leading up to Monday’s earnings report, Palantir’s stock had experienced a strong rally. The stock was up over 60% year-to-date and had gained more than 45% in the past month alone, reflecting significant investor optimism and enthusiasm, particularly around its AI initiatives.
Tuesday’s 12% drop, while substantial and resulting in a loss of over $35 billion in market capitalization, occurred after this period of rapid appreciation. The decline can be seen as a correction triggered by the specific concerns highlighted in the earnings report, particularly the international weakness and the renewed focus on the stock’s elevated valuation.
Diverging Analyst Views
The varied interpretations of Palantir’s performance and future potential are reflected in the differing views among analysts. While some remain skeptical due to valuation concerns (like the Jefferies analyst with an Underperform rating), others remain highly bullish.
Dan Ives, a prominent tech analyst, remained optimistic on Palantir after the earnings report, raising his price target on the stock significantly from $120 to $140. Ives expressed a highly positive long-term view, calling Palantir a “generational tech name” that he believes could reach a “trillion market cap over the next three years” and positioning it as a “core name in the AI Revolution theme.”
This divergence highlights the ongoing debate among investors about the company’s true growth trajectory and appropriate future valuation.
A Nuanced Quarter
In conclusion, Palantir’s first-quarter 2025 earnings report delivered a nuanced picture. While the company successfully beat overall revenue expectations and demonstrated robust growth in its crucial United States segments, the performance was overshadowed by a decline in the international commercial business and persistent concerns about the stock’s high valuation.
The 12% drop in Palantir stock on Tuesday reflects investor sensitivity to execution in key growth areas and the ongoing debate about whether the company’s current market valuation is justified by its growth prospects, particularly in a complex global market facing headwinds and shifts towards tech sovereignty.
Despite the quarterly dip, the company’s raised full-year guidance and diverging analyst opinions signal that the debate about Palantir’s future trajectory remains active.
