It finally happened. After seeing its stock appreciate by more than 250% just this year, Palantir (NYSE: PLTR) has now surpassed legendary defense contractor Lockheed Martin in market capitalization. The software and artificial intelligence (AI) provider for the government, military, and big business is posting strong revenue growth and inflecting profits. It just reported Q3 earnings, which has propelled the stock up 40% in the past month.
Investors are getting increasingly bullish on Palantir stock. But should they be? Here’s what might come next for this hypergrowth momentum stock.
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At a market cap of $136 billion, Palantir is now one of the world’s largest defense contractors. The aforementioned Lockheed Martin has a market cap of $134 billion, with competitors, such as RTX Corporation, now one of the few stocks with larger valuations than Palantir.
How did it get here? With modern software solutions for the United States military and government agencies. This disrupted the legacy systems (or where no systems existed at all), as the U.S. government is looking for best-in-class software to maintain its edge. Government contracts are large and can expand over time, which is why Palantir’s U.S. government revenue keeps growing at a quick pace. Last quarter, U.S. government revenue grew 40% year over year.
But Palantir isn’t only selling to the U.S. government. In recent years, it has expanded to bring its software and AI solutions to large enterprises with much success. Even though the U.S. government can spend a lot of money, it is truly just one customer at the end of the day. Hundreds of corporations could utilize Palantir’s advanced analytical tools, and they are now starting to do so.
Accelerating demand from the U.S. government, as well as U.S. corporations, has enabled Palantir to accelerate its revenue growth. Last quarter, U.S. commercial revenue grew 54% year over year to $179 million. With the addition of the steady growth from government contracts and a slight headwind from international sales, overall revenue grew 30% year over year in the third quarter to $726 million.
Customer acquisition is growing even quicker. Total customers grew 39% year over year in Q3 and 6% from the second quarter to 629. That may seem like a small number, but remember, Palantir only targets the largest companies looking for custom-built software. The acceleration after Q3 seems to be continuing. Palantir closed 104 deals in the quarter worth over $1 million, which should turn into new revenue-generating customers in future years. Given the long-term nature of these contracts, the most important key performance metric for investors to track is customer count. If the customer count keeps rising, revenue growth will follow.
