Palantir Technologies‘ (PLTR) latest quarterly report shows that its US private-sector customers now spend more on the company’s software than its US federal clients do. And Wall Street is paying attention to that change.
In a BofA research note shared with me, analyst Mariana Perez Mora reiterated a Buy rating on Palantir with a price target of $255.
The call came after Palantir reported its quarterly results. At the time, PLTR was trading around $178, so her price target suggests potential gains of about 43% over the next 12 months.
Palantir builds software that large organizations use to pull their data together in one place and run it through artificial intelligence tools.
The company’s main products are Foundry for private companies, Gotham for government agencies, and AIP, which lets customers use AI on their own data without handing that data to outside model providers.
Commercial customers just outspent the government for the first time
Palantir reported third-quarter revenue of $2.31 billion on November 2. That’s a 96% increase from the same quarter last year. CFO Dave Glazer told investors on the earnings call that the 96% revenue increase was Palantir’s highest ever as a public company.
It is also the company’s first-ever quarter above $2 billion, according to its SEC filings. In the earnings call, Palantir reported that its US commercial revenue grew 148% year over year to $984 million and passed its US government revenue of $953 million for the first time in the company’s history.
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This is the shift that caught BofA’s attention. Federal contracts can be delayed or canceled when the government’s budgets tighten, so having a stronger private-sector business is good for Palantir. It gives the company a steadier base and a much wider pool of future customers across various industries.
Palantir CEO Alex Karp has described customer demand for the company’s AI tools as “extraordinary and ravenous.NurPhoto / Getty Images
Why Bank of America sees $255 on Palantir stock
Perez believes Palantir’s background in classified government work gives it an advantage when selling to big companies. Based on their experience in the field, major companies will be more at ease about their data safety. That’s why BofA wrote, “We favor the natural moat PLTR has in implementing the AI data control layer from its national security heritage.”
She also added that commercial demand is now “driving high-margin growth particularly in the US business.” Palantir’s management shares that view. CEO Alex Karp said in his letter to shareholders that customer demand for Palantir’s AI tools is ” absolutely ravenous and remains far from sated in the United States.”
Bigger customers and bigger contracts show real traction
Palantir has solid customer relationships that bring in steady revenue. In the third quarter, the company’s US commercial customer count grew 29% year over year to 686.
The company’s top 20 accounts also brought in an average of $146 million per customer over the past 12 months, up 76% from a year earlier, Yahoo Finance reported.
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In addition, Palantir closed 107 contracts worth over $5 million each and 64 contracts worth over $10 million in the third quarter.
As a result, the value of the company’s US commercial deals that are already signed but not yet counted as revenue jumped 79% to $6.5 billion. That kind of backlog is usually a sign that a company has good future growth prospects.
What could still go wrong for Palantir stock buyers
Even with promising future growth prospects, there are still risks to consider before buying the stock. Palantir trades at about 113 times forward earnings, which is quite high. A slightly disappointing quarter could quickly affect the stock when its multiple is that high.
In addition, Palantir’s new US commercial contract value grew only 11% year over year in the third quarter. That is a large decline from the more than 150% in the previous period. Karp also admitted that Palantir’s demand is already running ahead of what the company can deliver.
So if you already own PLTR shares, this quarter supports a long-term outlook, but the stock’s high valuation means any slowdown could trigger sharp pullbacks. Investors should consider buying in smaller amounts over several weeks to avoid taking on all the risks at once.
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