Palantir’s Rally Runs Into the Valuation Question: Inside the Numbers, the Narrative, and the Risk of Re‑rating

Palantir’s latest filing puts hard numbers behind the AI platform narrative. For Q2 FY2025 (three months ended June 30, 2025), revenue reached $1,003.7 million, up from $883.9 million in Q1 FY2025 and $827.5 million in Q4 FY2024, according to SEC filings. The sequential growth rate from Q1 to Q2 was roughly 13.6%, underscoring momentum through mid-2025. Gross margin remained robust: cost of revenue was $192.9 million in Q2 against revenue of just over $1.0 billion, yielding a gross profit of $810.8 million. Operating income rose to $269.3 million in Q2, up from $176.0 million in Q1 and $11.0 million in Q4 FY2024 as expense growth lagged revenue growth—a sign of improving operating efficiency and scale benefits.

Two items are particularly noteworthy. First, interest income was meaningful. SEC filings show $56.3 million in interest income in Q2 FY2025, after $50.4 million in Q1 and $54.7 million in Q4 FY2024. That boost—functionally a macro yield tailwind on cash-heavy balance sheets—fed directly into pre-tax income. Second, the net income line accelerated faster than operating income: Q2 FY2025 net income came in at $326.7 million (EPS $0.14 basic; $0.13 diluted), after $214.0 million in Q1 FY2025 and $79.0 million in Q4 FY2024. The net margin in Q2 (roughly 32.6%) looks spectacular on the surface but includes the interest income effect and a very light tax line; investors should be cautious about annualizing that snapshot.

Cost discipline continues to improve. Research and development expense was $135.0 million in Q2, with SG&A at $406.4 million. Notably, Financial Modeling Prep’s key metrics indicate stock-based compensation (SBC) as a share of revenue fell to roughly 16% in Q2 FY2025 from about 34% in Q4 FY2024. If sustained, this would become a powerful vector for expanding GAAP operating margins and lowering dilution pressure. However, the company still issues meaningful equity, and diluted weighted average shares stood at about 2.56 billion in Q2 FY2025, up from near 2.46 billion in Q3 FY2024.

A final point on framing: these are fiscal quarters, not calendar. Q2 FY2025 refers to the quarter ended June 30, 2025, per Palantir’s filings. That precision matters for comparing to consensus expectations and rival reports, which often cite calendar quarters. It also matters for seasonality analysis—a detail sometimes lost in coverage when sentiment runs hot.

Valuation is where the bull and bear narratives collide. On market cap alone, there is already disagreement across sources, a function of share-count baselines and data timing. Financial Modeling Prep’s quarterly key metrics peg Palantir’s market capitalization at about $322 billion as of the Q2 FY2025 dataset. By contrast, using Yahoo’s August 8, 2025 close ($186.96) times recent diluted share counts from SEC filings implies a figure substantially higher, likely well north of $400 billion. Note that multiplying by diluted weighted-average shares (≈2.56 billion) can overstate point-in-time market cap versus basic shares outstanding; the directional takeaway remains that spot pricing implies a materially larger capitalization than the FMP snapshot.

To cut through this, start with first principles: trailing revenue and enterprise value. Over the last four reported quarters (Q3 FY2024 through Q2 FY2025), Palantir generated approximately $3.44 billion in revenue (sum of $725.5m, $827.5m, $883.9m, and $1,003.7m), according to SEC filings. Even if we use the lower $322 billion market cap figure and acknowledge the firm’s minimal net debt, the implied price-to-sales ratio runs close to 90–95x TTM. If the market cap is closer to $425–$450 billion under Yahoo’s price and fully diluted shares, the multiple is even richer—easily into triple digits.

Price-to-earnings is no easier. TTM GAAP EPS, summing the last four basic EPS prints (roughly $0.064, $0.034, $0.09, and $0.14), lands near $0.33; on a diluted basis slightly lower. At a $186.96 share price, the backward-looking P/E would be extremely high, with the exact figure sensitive to basic vs diluted share definitions and one-time items. Financial Modeling Prep’s key metrics show a quarterly snapshot P/E of around 247x in Q2 FY2025, but the platform’s other computed ratios appear anomalous (for example, a price-to-sales ratio above 300x for the quarter), suggesting caution in relying on that single field without cross-checks.

However, this raises questions about what the market is truly discounting. For Palantir to grow into these multiples on reasonable horizon math, investors are assuming a blend of sustained 30–40%+ revenue growth for multiple years, continued margin expansion (including meaningful SBC normalization), and a durable competitive moat in mission-critical AI platforms that supports premium pricing and high retention. That is not impossible. But it is demanding.

The bull case is as much strategic as it is mathematical. Palantir’s value proposition—a unified platform for data integration, analytics, and applied AI with deep government credentials and growing commercial adoption—skews toward mission-critical use cases. That positioning, in theory, carries higher switching costs and larger account expansions than typical enterprise software.

The last four quarters lend some support. Revenue scaled from $725.5 million in Q3 FY2024 to $1.00 billion in Q2 FY2025, a roughly $278 million absolute increase. Operating income widened from $113.1 million to $269.3 million over the same period, while reported SBC intensity fell materially, according to Financial Modeling Prep key metrics. Meanwhile, gross margins have remained in the high 70s to low 80s, consistent with software-like unit economics that compound well when growth is robust.

Bulls also argue Palantir’s edge is structural: its long-standing government footprint and hard-to-replicate integration know-how confer defensibility as organizations deploy AI in sensitive domains. If AI adoption follows an S-curve, early platform incumbency can be a powerful moat. That would justify premium multiples for longer.

Still, even bullish arithmetic must square with the valuation. Suppose Palantir sustains 35% compound annual growth for three years and expands GAAP net margins into the 20–25% range while stabilizing dilution. Under that scenario, TTM revenue in 2028 could exceed $8 billion, with $1.6–$2.0 billion of net income. Even then, a $400+ billion market cap implies 200–250x those 2028 earnings—still elevated unless growth and margins overshoot or the risk-free rate falls substantially. The gap between narrative and normalized fundamentals is the tension line to monitor.

A recent analysis syndicated on Nasdaq (from The Motley Fool) contends that Palantir’s valuation is “unsustainably high,” predicting that ASML and AMD could surpass Palantir’s market value within three years if Palantir’s multiples normalize. The author claims Palantir’s Q2 revenue rose 48% year over year to more than $1 billion, and that during its AI surge Nvidia did not trade above roughly 46x sales or 51x forward earnings. The thrust is that even generous growth and margin assumptions struggle to justify Palantir’s current capitalization if a re-rating occurs.

How does this square with what we can verify? SEC filings confirm the $1.00 billion Q2 FY2025 revenue figure and a 48.0% year-over-year increase versus $678.1 million in Q2 FY2024. The piece’s market cap comparisons also warrant caution. Financial Modeling Prep’s quarterly snapshot shows a roughly $322 billion market cap; Yahoo’s pricing and diluted share math points higher. ASML and AMD’s current market caps were not pulled via this analysis workflow, and both have moved substantially in 2024–2025. Point-in-time comparisons can mislead when the denominator is volatile.

The Nvidia analogy illuminates, but doesn’t settle, the question. Comparing Palantir’s software-led, services-adjacent platform to a semiconductor manufacturer with explosive operating leverage and a hardware backlog requires nuance. Nvidia’s capital intensity, supply dynamics, and gross margins set a different ceiling on incremental profitability. If Palantir’s platform monetization per customer rises sharply through AI application layers, the relevant comp set may blend security software, data platforms, and premium vertical solutions more than chipmakers. That said, the spirit of the skeptic case holds: relative to almost any comp set, Palantir’s current multiples embed perfection. If growth slips, or if GAAP margins normalize lower without the interest income tailwind, the re-rating risk is non-trivial.

Quarterly optics matter. Q2 FY2025’s net margin of 32.6% benefited from $56.3 million in interest income and light taxes; the same pattern appears in Q4 FY2024 and Q1 FY2025, according to SEC filings. This is a byproduct of elevated short-term rates and a large cash balance. If the Federal Reserve’s policy trajectory brings rates lower into 2026, interest income will likely fade, subtracting a mechanical boost from pre-tax and net income. Investors should adjust their mental models to an operating-income-led margin story rather than relying on the cash-yield tailwind.

Stock-based compensation is the other lever. Financial Modeling Prep’s key metrics indicate SBC as a share of revenue declined from about 34% in Q4 FY2024 to roughly 16% in Q2 FY2025. That is materially constructive—twice over. First, it reduces the gap between non-GAAP and GAAP margins, making operating leverage more visible. Second, it tempers dilution; even so, diluted average shares were around 2.56 billion in Q2 FY2025 versus roughly 2.46 billion in Q3 FY2024, per SEC filings. The company’s ability to continue scaling while further normalizing SBC will be central to sustaining a premium multiple.

Cash generation is another bright spot. Operating cash flow per share has remained healthy in recent quarters, with free cash flow conversion near parity, according to Financial Modeling Prep. Balance sheet leverage is minimal (debt-to-equity near 0.04–0.05 across the last few snapshots). The upshot: Palantir does not need capital to fund growth, and it has flexibility to invest aggressively where ROI is highest. However, optically low GAAP tax rates and interest income tailwinds complicate straight-line extrapolations of net margins. Investors should prioritize operating margin expansion and unit economics over headline net margin in the next 12 months.

The available data suggests Palantir is executing strongly—revenue is compounding, operating income is scaling, and SBC intensity is improving. Those are facts grounded in SEC filings for Q3 FY2024 through Q2 FY2025. The share price surge to a new high is also a fact, per Yahoo Finance. Where things get murkier is the capital markets overlay: market cap estimates vary by source and method; Financial Modeling Prep’s computed valuation ratios appear inconsistent in places; and the forward-looking consensus picture is incomplete. As such, we avoid beat/miss claims for Q2 FY2025 versus consensus.

On the narrative side, the Nasdaq-syndicated article’s key assertions—Palantir as the “most expensive stock by certain measures,” the plausibility of a sharp re-rating, and the notion that even favorable assumptions may not bridge the valuation—align with the uncomfortable arithmetic we outline. However, the piece’s reliance on point-in-time market caps for ASML and AMD, and on relative multiples drawn from a different industry archetype (Nvidia), introduces comparability issues. The better lens is an internal one: can Palantir keep revenue growing 30–40%+ for multiple years, expand GAAP operating margins into the 20s while further curbing SBC and dilution, and maintain high net revenue retention? If yes, investors can model into today’s multiple. If no, a re-rating is likely.

Information gaps: The most glaring gap is a clean, apples-to-apples near-term analyst consensus for revenue and EPS around Q2 FY2025; we did not rely on consensus figures here. We also now have Q2 FY2024 filings in hand, confirming year-over-year growth for Q2 FY2025 at 48.0%. Additionally, we lack segment-level detail (government vs commercial, regional splits) for this specific quarter in the pulled dataset, which would help assess durability.

Data limitations: Some computed valuation metrics from Financial Modeling Prep’s quarterly key metrics are likely distorted (for example, a quarterly price-to-sales ratio above 300x). We therefore triangulated using TTM revenue from SEC filings and a range of market cap estimates. Yahoo Finance provides price, volume, and 52-week trading range, but as always, share-count baselines can diverge across data providers, affecting market cap. These issues caution against overprecision in headline multiples.

Potential biases and conflicts: Syndicated opinion pieces may have author-level biases—momentum skepticism in high-multiple environments is common and can be directionally right but overly categorical. Conversely, bullish sell-side notes can lean optimistic on total addressable market and margin expansion. Palantir’s own investor communications will emphasize strategic product narrative and total platform wins. Our approach weights audited financial statements (SEC) most heavily, uses Yahoo Finance for price context, and treats external opinion as hypothesis rather than fact.

Alternative interpretations: The interest-income uplift could be framed as a temporary accelerant masking underlying operating margin; a bear might strip it out and argue true profitability is thinner than meets the eye. A bull might counter that SBC normalization and operating leverage are the more durable drivers, and that interest income is a sideshow. Both can be true; the investment question is which dominates over the next 6–8 quarters.

Immediate consequences: The stock’s rapid ascent into a new 52-week high tightens the margin for error heading into the back half of 2025. With revenue now at a $4+ billion annualized run-rate and Q2 operating income near $270 million, investors will expect sustained sequential growth and further operating leverage in Q3 and Q4. Any slowdown—especially if paired with a declining interest-income line as rates drift lower—could catalyze a multiple reset.

Scenarios:

- Base case (40–50% likelihood): Revenue growth runs in the high 20s to mid-30s over the next year; GAAP operating margins widen gradually as SBC intensity normalizes into the low-to-mid-teens of revenue; diluted share growth decelerates. Valuation remains elevated but compresses modestly, with price-to-sales drifting lower as the denominator grows. Stock consolidates gains but is choppy as expectations reset quarter to quarter.

- Bull case (25–35%): Commercial AI use cases scale faster than expected, large enterprise expansions accelerate, and Palantir monetizes higher-value application layers. Revenue growth sustains 35–45%+, GAAP operating margins move into the low-20s by late 2026, and interest income fade is offset by core operating strength. Valuation stays rich but defensible; stock grinds higher with bouts of volatility.

- Bear case (15–25%): Growth decelerates below 25%, SBC re-accelerates in a renewed hiring cycle, or customer concentration issues emerge. Interest income rolls off faster than modeled. Valuation compresses sharply toward more conventional software multiples, overwhelming steady but unspectacular operating progress. Stock retraces significantly from current highs.

Key monitoring factors: (1) Sequential revenue growth each quarter—particularly in commercial; (2) GAAP operating margin trajectory and SBC as a percentage of revenue; (3) Diluted share count management; (4) Interest income run-rate and its sensitivity to rate cuts; (5) Net revenue retention and large-deal cadence; and (6) Evidence of durable platform effects—shorter sales cycles, standardized deployments, and expanding average contract value.

Avoid overconfidence: The dispersion of outcomes is wider than usual because the valuation is extreme relative to conventional benchmarks. Available data supports strong execution; it does not, on its own, guarantee that the growth and margin path will fully justify the current capitalization without intermittent re-ratings.