Palantir Erupts On Big Earnings Beat; Next Phase Of AI Is Application Layer

First came advanced Nividia chips, followed by the "Powering Up America" theme and a surge in data center investments. So what's next? The focus shifts to the application layer. 

Now that Deepseek AI is behind us, investors are beginning to focus on the software application layer that may further the AI bubble. 

Take Palantir Technologies, for example. Shares surged Monday evening after the AI software company delivered a strong fourth-quarter beat, issued a full-year revenue forecast above Bloomberg Consensus, and its CEO touted "untamed organic growth" for its AI products. 

Palantir CEO Alex Karp

Palantir is best known for its national security work, providing the US government and federal agencies, including the Department of Defense, with high-tech AI products. The company reported a massive fourth-quarter revenue beat, up 36% to $827.5 million, surpassing the Bloomberg-tracked average consensus of $775.9 million. Profit also exceeded expectations, coming in at 14 cents per share, compared with an estimated 11 cents. 

Here's a snapshot of fourth-quarter results (courtesy of Bloomberg): 

• Revenue $827.5 million, +36% y/y, estimate $775.9 million

• Operating profit $11.0 million, -83% y/y, estimate $84.8 million

• EPS 3.0c vs. 4.0c y/y

• Cash and cash equivalents $2.10 billion vs. $831.0 million y/y, estimate $1.18 billion

• Adjusted operating profit $372.5 million, +78% y/y, estimate $309.6 million

• Adjusted EPS 14c vs. 8.0c y/y, estimate 11c

• Adjusted Ebitda $379.5 million, +75% y/y, estimate $314.3 million

• Adjusted free cash flow $517.4 million, +70% y/y

• Adjusted operating margin 45% vs. 34% y/y, estimate 39.6%

The Denver-based company reported a 2025 full-year forecast that exceeded the Bloomberg Consensus estimates as it rides the next evolution of the AI bubble, that being the application layer... 

Full-Year Forecast (courtesy of Bloomberg): 

• Sees revenue $3.74 billion to $3.76 billion, estimate $3.54 billion

• Sees adjusted operating profit $1.55 billion to $1.57 billion, estimate $1.37 billion

• Sees adjusted free cash flow $1.5 billion to $1.7 billion

• Sees US Commercial revenue above $1.08 billion

First Quarter Forecast: 

• Sees revenue $858 million to $862 million, estimate $802.9 million (Bloomberg Consensus)

• Sees adjusted operating profit $354 million to $358 million, estimate $300.4 million

Here's what Wall Street had to say (courtesy of Bloomberg):

Morgan Stanley analyst Sanjit Singh (raised to equal-weight from underweight)

• Palantir's fundamentals are getting better and there's a lack of a clear downside catalyst despite the stock's expensive valuation

• Results were driven by demand in the company's US commercial and US government units

• PT set to $95 from $60, new target implies a 13% increase from last close

Bloomberg Intelligence analyst Mandeep Singh

• While sales gains outside the US may remain muted, Palantir's strong 4Q government segment growth could be the result of increased geopolitical tensions

• "International's contribution to total sales may decline by at least 10 percentage points"

Jefferies analyst Brent Thill (underperform, PT to $60 from $28)

• Palantir reported an exceptional 4Q "with a record rev beat, growth acceleration across most top-line metrics"

• "Fundamentals have been strong and we are constructive on the accelerating US momentum"

William Blair (underperform)

• The outlook "was a shortfall of $750 million from when CEO Alex Karp stated, 'I am driving the company to get to $4.5 billion in 2025,'" on an August 2022 earnings call

• "Although the company missed its three-year target, the company's Foundry and Gotham software is experiencing significant momentum in the market"

• Shares trade at "a $100 billion-plus premium to peers with similar fundamentals"

RBC Capital Markets (underperform, PT $11)

• "Palantir reported a solid quarter, and 2025 guidance came in ahead of consensus"

• The acceleration in US commercial growth is notable

Vital Knowledge

• The results show "solid upside" on sales and operating margins

• The outlook is positive and the company's commentary "remains as bullish as ever"

Shares of Palantir surged 21% in premarket trading in New York, reaching a new record high of $101 per share.

Back to the broader view, Goldman's Kash Rangan explained to clients this week that "the Application layer of AI development is poised to benefit in CY25 as revenue shifts from the Infrastructure layer." 

And we'll end the note with Palantir CTO Shyam Sankar's comments on China...

NEW - Palantir CTO says the United States "is at war with China" and "the time to mobilize has come."pic.twitter.com/QHr10QpGLm

— Disclose.tv (@disclosetv) February 4, 2025

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