Palantir Technologies (PLTR) took a sharp hit on Feb. 19, closing over 10% lower and losing about 6% in morning trading on Thursday, Feb. 20. The selloff was triggered by a Washington Post report indicating that U.S. Defense Secretary Pete Hegseth has directed top Pentagon officials to prepare for defense budget cuts over the next five years.
For a company like Palantir, which is heavily reliant on government contracts, particularly within the defense sector, this news injects significant uncertainty into its future revenue stream. In 2024, Palantir generated $2.9 billion in revenue, with 55% of that coming from government clients and the remaining 45% from the commercial sector. With potential reductions in defense spending, Palantir’s government business faces unpredictability that investors must carefully consider.
This isn’t the first time concerns about Palantir’s revenue concentration have been raised. The company’s heavy reliance on U.S. government contracts makes it vulnerable to policy shifts, budget constraints, and changing political priorities. If defense spending sees cuts, Palantir could struggle to maintain its growth trajectory, especially if commercial revenue doesn’t scale fast enough to compensate.
Beyond budgetary concerns, Palantir’s valuation has been another key risk. The stock has delivered an astounding 365% gain over the past year and remains up about 44% year-to-date, even after the recent pullback. However, these gains have pushed Palantir’s valuation into sky-high territory. PLTR stock trades at a price-sales ratio of 99.07x and a forward price-earnings ratio of 384.39x —multiples far above industry averages. Such lofty valuations raise concerns about whether the company’s future growth can justify its current stock price or if investors are in for a reality check.
What’s Ahead for Palantir
Palantir has consistently delivered solid financials over the past several quarters. In the fourth quarter of 2024, Palantir posted revenue of $828 million, up 36% year-over-year. Even more impressive is that the company’s revenue growth has been accelerating over the past seven quarters, jumping from 13% in Q2 2023 to 36% in Q4 2024. This consistent upward trend highlights Palantir’s growing market dominance and ability to capitalize on increasing demand for its advanced data analytics and artificial intelligence (AI) solutions.
A significant portion of Palantir’s growth has been driven by its government business, particularly in the U.S. In Q4 2024, revenue from U.S. government contracts surged by 45% year-over-year as federal agencies ramped up their adoption of Palantir’s AI capabilities. The company’s offerings have become a key part of operations across the Army, Air Force, and Space Force, demonstrating its increasing relevance in national security and defense applications.
During the company’s latest earnings call, Palantir’s management emphasized that the demand for AI-powered software in government operations is expanding rapidly, and Palantir has been able to capitalize on this trend until now. However, potential defense budget cuts introduce uncertainty, making its commercial expansion even more critical.
While Palantir’s government contracts remain a core revenue driver, its commercial business is experiencing explosive growth. The adoption of its Artificial Intelligence Platform (AIP) among commercial clients is fueling new customer acquisitions and deeper engagement with existing clients. In Q4, U.S. commercial revenue soared 64% year-over-year and 20% sequentially, reaching $214 million. For the full year, U.S. commercial revenue climbed 54% to $702 million.
The company also reported a record-breaking quarter for total contract value (TCV) booked in its U.S. commercial business. The business’s TCV hit $803 million, up 134% year-over-year. This surge reflects heightened demand for AI-driven solutions across industries.
Palantir’s total remaining deal value in its U.S. commercial segment nearly doubled year-over-year, growing 99%. Moreover, its customer count expanded by 73% to reach 382. These metrics indicate solid demand for Palantir’s AIP, setting the stage for sustained revenue growth.
Palantir’s commercial business will be a significant revenue growth engine. Management projects that the company’s U.S. commercial revenue will surpass $1.079 billion in 2025, up 54% year-over-year. Meanwhile, Palantir’s total revenue for 2025 is forecast to range between $3.741 billion and $3.757 billion, reflecting 31% year-over-year growth rate at the midpoint.
As revenue scales, its margins and adjusted free cash flow will expand and strengthen its financial position. However, the uncertainty related to government revenue could lead to a moderation in its growth rate in the coming years.
The Bottom Line
Palantir’s high valuation and the uncertainty associated with government contracts pose challenges. While its U.S. commercial business is gaining momentum, it must grow rapidly to justify Palantir's premium price tag.
Currently, Wall Street remains cautious. Analysts have given Palantir stock a “Hold” consensus rating.
