If You Hold Palantir Stock (PLTR)... GET READY!

Key Concepts

• Palantir's Earnings Performance: Record revenues, significant year-over-year and quarter-over-quarter growth, particularly in the US commercial sector.
• Growth Metrics: Customer count, net dollar retention rate, and their multiplicative effect on revenue growth.
• AI Revolution: Palantir's positioning as a critical infrastructure provider for AI adoption.
• Rule of 40: A financial metric used to assess the health of growth companies, combining revenue growth and operating margins.
• Michael Bur's Short Position: A significant bet against Palantir and Nvidia, interpreted as a short-term price action play rather than a fundamental disagreement with the companies' long-term prospects.
• Stock Valuation and Investment Strategy: Discussion on the limitations of P/E ratios for high-growth companies and the author's approach to investing in Palantir (dollar-cost averaging).
• AI Ecosystem: Palantir's role alongside chip manufacturers like Nvidia and Broadcom, and AI model developers.

Palantir's Record Earnings and AI Revolution Positioning

Palantir's latest earnings call was highlighted as their most significant to date, not just for financial results but for demonstrating their crucial role in the broader AI revolution. The company reported record revenues of $1.2 billion for the quarter, representing an 18% quarter-over-quarter increase and a substantial 63% year-over-year growth.

Breakdown of Growth by Business Unit

The transcript emphasizes the importance of dissecting Palantir's growth across its four main business units: US commercial, US government, non-US commercial, and non-US government.

• US Commercial Growth: This segment is identified as the most critical for investors due to its large total addressable market. US commercial revenue reached $397 million, marking a 29% quarter-over-quarter increase and an exceptional 121% year-over-year growth.

Metrics for Sustainable Growth

To assess the sustainability of this rapid growth, two key metrics are analyzed:

• Customer Count: Palantir's US commercial customer count grew to 530, a 65% increase from the previous year. This signifies a significant expansion, with the company working with 65% more commercial clients compared to a year ago. This growth in customer base is crucial as it leads to new use cases, ready-to-deploy analysis tools, industry-specific data pipelines, and enhanced AI features, which in turn attract more customers. The transcript notes an acceleration in customer growth quarter-over-quarter and year-over-year.
• Net Dollar Retention Rate: This metric, measuring the year-over-year change in recurring revenue from existing customers, reached an all-time high of 134%. This means existing customers spent 34% more with Palantir this year compared to last.

The multiplicative effect of these two metrics is highlighted: a 65% increase in customers combined with a 34% increase in revenue per customer explains the robust 121% US commercial revenue growth, indicating healthy and stable expansion.

Government Sector Performance

Beyond commercial success, Palantir's government segments also showed strong performance:

• US Government Revenue: Grew by 52%.
• Overall Government Revenue: Increased by 55%.

This demonstrates high demand for Palantir's AI platforms even in slower-moving and heavily regulated markets. The overall year-over-year revenue growth of 63% is attributed to this consistent acceleration over the past two years.

The Rule of 40: A Superior Growth Metric

The transcript argues that the Price-to-Earnings (P/E) ratio can be a misleading metric for fast-growing companies, citing Nvidia's historical performance as an example. Instead, the Rule of 40 is presented as a more effective way to evaluate companies like Palantir.

Understanding the Rule of 40

The Rule of 40 states that a healthy growth company should have its revenue growth rate plus its operating margin rate equal to or greater than 40%. This metric accounts for both top-line growth and profitability.

Palantir's Exceptional Rule of 40 Score

Palantir reported adjusted operating margins of 51% and GAAP operating margins of 33%, with the latter more than doubling from 16% the previous year. This resulted in a Rule of 40 score of 114%, described as an "Olympic grade score" or a "Michael Phelps like score."

Comparative Analysis of Rule of 40 Scores

The transcript presents a comparative analysis of Palantir's Rule of 40 score against other major companies:

• Enterprise Software Companies (>$1 billion TTM Revenue):
  • Intuit: 42%
  • Adobe, Autodesk: ~55%
  • Fair Isaac Corporation: 77%
  • Palantir: 114%
• Top 25 Companies Globally by Market Cap:
  • Tesla, Amazon, Samsung: 20s
  • Netflix, Apple, Berkshire Hathaway: 40s
  • Google, Tencent, Oracle, JP Morgan Chase: 50s
  • Meta, Broadcom, Microsoft, Mastercard, Visa: 70s
  • Taiwan Semiconductor: 81%
  • Eli Lilly: 102%
  • Palantir: 114%
  • Nvidia: 120%

Key Observations on the Rule of 40 Score

• Adjusted vs. GAAP Margins: Even using Palantir's GAAP operating margins of 33%, its Rule of 40 score would be 96%, still significantly outperforming most companies.
• Increasing Difficulty: As a company's score increases, each additional point becomes harder to achieve due to sustained high growth and increasing competition.
• Balanced Growth: Palantir's score of 114% is notable for coming from a relatively balanced contribution of 63% revenue growth and 51% operating margins, unlike many companies that rely heavily on high margins with lower growth.

This exceptional score positions Palantir as a central player in the AI revolution, alongside Nvidia.

Michael Bur's Short Against AI and Palantir

The transcript addresses Michael Bur's significant short position, reportedly around $912 million, against Palantir and Nvidia.

Alex Karp's Perspective

Palantir CEO Alex Karp expressed bewilderment at Bur's bet, stating: "Being short is a very difficult place to be because you can lose everything... Michael Bur put a really big bet on it's almost a billion dollars. It's $912 million... First of all, he's it's like he's actually putting a short on AI. So, the way I read it was us and Nvidia and it's like the biggest position is you though." Karp also suggested the possibility of market manipulation, noting that the companies being shorted are the ones "making all the money." He found the idea of shorting "chips and what you want to short is bat crazy."

Author's Interpretation of Shorting

The author agrees with Karp that shorting AI and its underlying infrastructure is "pretty crazy." However, the author distinguishes between a long-term investment thesis and shorting, which is primarily focused on short-term price action. Michael Bur is seen as betting on stock price declines before they rise, rather than against the fundamental value of Palantir's platforms or Nvidia's infrastructure.

Self-Fulfilling Prophecy and Impact on Investors

Bur's disclosure of his short position can create a self-fulfilling prophecy, generating headlines that drive stock prices down, thus profiting his short. While the author disagrees with Karp's anger, acknowledging that these headlines also negatively impact other investors, including Palantir itself. This is seen as potentially beneficial for Palantir, which has nearly $900 million in approved share buybacks, allowing them to repurchase more shares at lower prices.

Is it Too Late to Buy Palantir Stock?

Despite Palantir's 270% stock price increase over the past year, reaching nearly $190 per share, the question of whether it's too late to invest is explored.

Palantir's Long-Term Potential

The author believes Palantir will be a critical part of the AI infrastructure for major enterprises. AI models are compared to chips, requiring significant infrastructure and developer support to be useful at scale. Palantir is seen as excelling in providing this software infrastructure. The author anticipates substantial long-term growth for Palantir stock, though not a linear path to a trillion-dollar valuation.

Volatility and Risk Tolerance

It's important to note Palantir's history of significant price drops, including 50-70% crashes in the past and multiple 20% drops this year alone. Investors are advised to be cautious and understand their risk tolerance.

Palantir's Position on the "Get Rich Without Getting Lucky" List

Palantir has been moved up one spot on the author's list, now positioned above Google.

• Nvidia: Still considered the absolute leader in the AI revolution, with its Blackwell Ultra GPUs, Reuben, and the extensive CUDA ecosystem.
• Broadcom: A close second, offering custom chips, network infrastructure, and software stacks that compete with Nvidia.
• Palantir: Recognized as a tech giant with a $450 billion valuation and significant capture of the enterprise AI market. It was the author's best-performing stock in 2024 and is up over 150% in 2025.
• Google: A core part of the AI revolution with a vast portfolio of AI-benefiting products and services (Google Cloud, TPUs, Android, Gemini, Chrome, Workspace, YouTube). However, Palantir is seen as a more focused bet on AI specifically.

Investment Strategy: Dollar-Cost Averaging

The author's plan for Palantir is to continue dollar-cost averaging slowly, buying fewer shares as the price rises. The strategy involves averaging in more aggressively during future significant price drops.

Conclusion and Key Takeaways

Palantir's latest earnings call revealed exceptional financial performance and solidified its position as a vital enabler of the AI revolution. The company's strong growth in customer acquisition and retention, coupled with its impressive Rule of 40 score, indicates healthy and sustainable expansion. While Michael Bur's short position highlights short-term market dynamics, the long-term outlook for Palantir as a critical AI infrastructure provider remains robust. Investors are advised to approach the stock with an understanding of its volatility and to consider strategies like dollar-cost averaging for long-term wealth creation. The author reiterates that the best investment is in oneself, emphasizing the importance of understanding the underlying science of businesses.