The company’s revenue growth and valuation remain critical focal points.
Palantir Technologies (PLTR 0.60%) has recently secured a new contract with the U.S. government to provide artificial intelligence (AI) capabilities to various military branches through its Maven Smart System. This agreement will compensate Palantir up to $99.8 million over the next five years.
Palantir’s announcement of several new contract wins has prompted investors to question whether these contracts will be sufficient to fuel the necessary growth to justify the company’s high valuation.
### Valuation versus Growth
Palantir has positioned itself as a leading data analytics and AI technology company, supporting the government in essential mission-critical tasks, including combating terrorism and tracking COVID-19 cases during the pandemic. Recently, it has experienced significant growth in the private sector, with customers adopting its Artificial Intelligence Platform (AIP) for various applications.
The company’s private sector success spans multiple industries, with recent contracts from entities such as Nebraska Medicine and energy giant BP. Palantir’s AI platform has increasingly attracted commercial customers, leading to a 33% year-over-year revenue growth in this segment to $307 million in the second quarter.
Despite past signs of slowing, Palantir’s government segment is showing renewed growth, increasing from 14% in 2023 to 16% in Q1 and accelerating to 23% year-over-year in Q2, reaching $371 million for the quarter. Growth in its U.S. government segment rose from 12% year-over-year in Q1 to 24% in Q2. Overall, Palantir reports a solid growth trajectory, with Q2’s overall revenue increasing 27% to $678 million.
However, the company’s revenue growth has not yet justified its current valuation. The forward price-to-sales (P/S) ratio is 25 times analysts’ 2025 consensus revenue estimates, a valuation typically reserved for hyper-growth stocks expecting 50% or more revenue growth in the coming years. Palantir needs to sustain its accelerated growth to validate its stock’s current valuation.
A contract like the recent military deal for the Maven Smart System will contribute approximately $20 million annually to revenue. Given the company’s forecast revenue of between $2.742 billion and $2.750 billion for this year, the $20 million increments add only about 0.7 percentage points of growth.
Securing significant U.S. government contracts would significantly help accelerate growth. The company’s collaboration with Microsoft, deploying offerings through Microsoft’s government cloud services, including Azure Government, Azure Government Secret, and Azure Top Secret cloud, aims to expedite U.S. government deployments, particularly with AIP.
On the commercial side, Palantir plans to expand its customer base through boot camps, demonstrating how AIP can be applied to various use cases while offering onboarding and training. This strategy has been successful in moving prototype work to production, where the company perceives the greatest opportunity.
### Valuation Still Matters
The central issue remains valuation. Even with 30% annual revenue growth over the next three years, Palantir would reach $6 billion in revenue by 2027, resulting in a forward P/S multiple of about 14 based on the current stock price. Such a multiple could be justified, comparable to a company like CrowdStrike, but would imply Palantir’s stock remains flat over the next two years. Additionally, achieving 30% annual revenue growth over three years, given its historical growth rates—24% in 2022, 17% in 2023, and 24% in the first half of this year—poses a significant challenge.
While Palantir exhibits potential as a strong company, its current valuation remains too elevated to recommend purchasing the stock at this time.
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BP, CrowdStrike, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.