Palantir’s stock is down after a gangbusters first quarter , and while the earnings report showed one or two tiny blemishes, signs of any real weakness for the company were basically nonexistent, even by the hyperbolic standards of tech-sector performance. The lukewarm investor response more likely signals wariness of soaring valuations and fatigue with idiosyncratic metrics at a moment of genuine uncertainty in big tech and national security, analysts said. Palantir has forward price-to-earnings of roughly 85 times and forward price-to-free-cash-flow of about 66 times, according to FactSet – eye-popping multiples at a time when leaps in artificial intelligence are forcing meetings at the White House and running roughshod over the legacy software business. PLTR 1D mountain Palantir shares in the past day Anthropic said its new Mythos model can reverse engineer hacks on even closed-source software. The company has reportedly been facing pressure from the White House to limit its rollout on security concerns. Alphabet CEO Sundar Pichai met with senior Trump administration officials last week about boosting AI processing power to make sure the government can “maintain its own defenses,” according to The New York Times . The high-stakes confabs follow the software rout labeled “SaaS-maggedon” that’s seen valuations within the historically high-margin sector take a dive. The iShares Expanded Tech-Software Sector ETF (IGV) has fallen more than 16% year to date. Can valuations endure amid breakthroughs? Multiples like Palantir’s look increasingly unsubstantiated in such an environment. “Anthropic just raced by them . If [Palantir does] $12 billion next year [in revenue], Anthropic is on a $40 billion run rate. You look at that and say, ‘Wait a minute. Why aren’t you investing in more salespeople? You’re letting your margin go to 60, [arguing that] there’s no competition, but someone just passed you on the left side going 100 miles an hour.’ I don’t understand that,” Jefferies senior software analyst Brent Thill told CNBC on Tuesday. Palantir is more than living up to its own standards and those of its industry. The company reported revenue growth of 85% on a year-over-year basis and a score of 145% on Big Tech’s favored Rule of 40 , an efficiency metric that combines topline growth with operating margin. That’s an acceleration from a previous reading of 127%, keeping Palantir in “a class of its own within software,” Deutsche Bank analysts said. However, it’s the standards themselves that are coming under greater scrutiny amid rapid technological advancements that are putting pressure on valuations. “Valuation is still not quite obvious in a world that is increasingly holding software companies accountable for [stock-based compensation],” analyst Brad Zelnick and colleagues wrote for Deutsche Bank on Monday, citing downside risk of “more intense competition from enterprise AI software and solution providers.” Investors are bracing for valuation changes due to AI in sectors beyond software. “There’s so many more of those,” Robbert van Batenburg, chief analyst with the Bear Traps Report, told CNBC. “This will be with us for the next couple years, and it will show up in many, many different ways that we’ve not really understood yet.” Visibility into government contract work The other uncertainty factor weighing on Palantir stock is the lack of transparency into some of its government contract work, which further clouds the question of valuation. “Risks primarily include competition and lack of visibility into the US Government business,” researchers wrote for UBS in a Monday note. U.S. commercial revenue grew by 133% annually in the first quarter to $595 million, down from 137% in the fourth quarter. Analysts noted it would have been higher had some of Palantir’s commercial business not been transferred to the public sector. Deutsche Bank analysts estimated that commercial revenues would have been up “143% year-over-year (vs. Street +135%) absent the transition of a successful U.S. commercial program into a U.S. Government customer.” Chief technology officer Shyam Sankar said the company has “surged resources” from Palantir’s commercial business due to “demand on the defense industrial base” during the first quarter, which saw the U.S. and Israel launch military operations against Iran. Usage of the company’s Maven intelligence platform has “doubled in the past four months through the end of March, and is now 4x over the past 12 months across the services, the combatant commands, the Joint Staff, and the intelligence community,” he said.
