Palantir Technologies Inc. (NYSE: PLTR)

Palantir’s Q1 2025 financial performance demonstrated robust growth across all key metrics. Revenue of $884 million represented a 39% year-over-year increase and a 7% sequential growth from Q4 2024. The company’s profitability metrics showed significant improvement, with GAAP income from operations more than doubling year-over-year to $176 million (20% margin), while adjusted income from operations reached $391 million (44% margin).

The company’s Rule of 40 score—the sum of revenue growth rate and adjusted operating margin—reached an impressive 83%, significantly exceeding the target of 40% that is considered benchmark for high-performing software companies. This metric underscores Palantir’s ability to deliver both strong growth and profitability simultaneously.

Free cash flow generation was particularly strong, with adjusted free cash flow of $370 million representing a 42% margin and 149% year-over-year growth. This cash generation strengthened the company’s already robust balance sheet, with cash, cash equivalents, and short-term U.S. Treasury securities totaling $5.4 billion at the end of Q1 2025.

Customer count grew 39% year-over-year and 8% quarter-over-quarter, reflecting strong new customer acquisition momentum. The company also demonstrated strong deal closure capabilities, with 139 deals of at least $1 million, 51 deals of at least $5 million, and 31 deals of at least $10 million closed in the quarter.

Stock-based compensation remained an important component of Palantir’s compensation structure, totaling $155 million for the quarter (17.6% of revenue), though this represents a decrease as a percentage of revenue compared to previous periods, reflecting improved operating leverage as the company scales.

U.S. Commercial Business delivered exceptional performance in Q1 2025, with revenue growing 71% year-over-year and 19% quarter-over-quarter to $255 million. This growth reflects the accelerating adoption of Palantir’s software platforms by commercial enterprises, particularly its Artificial Intelligence Platform (AIP). The segment has now surpassed a one-billion-dollar annual run rate, marking a significant milestone.

Total Contract Value (TCV) for U.S. commercial was $810 million in Q1 2025, representing a staggering 183% increase year-over-year and marking the highest quarter of U.S. commercial TCV in the company’s history. The Remaining Deal Value (RDV) for U.S. commercial reached $2.32 billion, up 127% year-over-year and 30% quarter-over-quarter, indicating strong momentum for future revenue growth.

U.S. Government Business also showed remarkable growth, with revenue increasing 45% year-over-year and 9% quarter-over-quarter to $373 million. This growth reflects continued demand for Palantir’s platforms across defense, intelligence, and civilian agencies, with expanded deployments of both Gotham and the AI Platform.

International Business (revenues from regions outside the U.S.) was approximately $256 million in Q1 2025, representing 29% of total revenue. While growth in international markets was more moderate compared to the U.S., the company continues to expand its global footprint and sees significant long-term opportunities in international markets.

The distribution of revenue continues to shift toward the U.S. market, which now represents 71% of total revenue, up from 64% in Q1 2024. This shift reflects both the exceptional growth in the U.S. as well as the strategic focus on the U.S. commercial opportunity, which represents the company’s fastest-growing segment.

Palantir’s strategic focus remains centered on its software platforms that power data-driven operations and decision-making:

Key Strategic Priorities

• Artificial Intelligence Platform (AIP): The rapid adoption of AIP continues to be a primary growth driver, particularly in the U.S. commercial market. AIP provides enterprises with an operating system for AI that connects models to operational systems and data, enabling practical applications of AI within existing workflows.
• Bootcamps and AIP Certification: The company’s bootcamp strategy, where potential customers can experience Palantir’s platforms through hands-on workshops, continues to drive customer acquisition and expansion, with high conversion rates to multi-million dollar deals.
• Expansion of Customer Base: The 39% year-over-year growth in customer count reflects Palantir’s success in expanding beyond its traditional large enterprise and government focus to reach a broader range of organizations.
• Deal Acceleration: Closing 139 deals of at least $1 million, including 31 deals of at least $10 million, demonstrates the company’s ability to secure significant commitments from customers who recognize the value of Palantir’s platforms.

In his quarterly letter to shareholders, CEO Alexander Karp emphasized that Palantir is “delivering the operating system for the modern enterprise in the era of AI.” This statement underscores the company’s strategic positioning as a critical infrastructure provider for organizations seeking to harness the power of artificial intelligence in their operations.

The company’s “land and expand” strategy continues to yield results, with existing customers increasing their commitments as they realize value from initial deployments. Additionally, Palantir is seeing success with its “acquire and scale” approach to new customer acquisition, where proof-of-value deployments quickly transition to enterprise-wide implementations.

Palantir continues to invest in research and development, with $135 million (15% of revenue) allocated to R&D in Q1 2025. This investment supports the ongoing enhancement of the company’s software platforms and the development of new capabilities to address evolving customer needs.

Based on the strong Q1 performance, Palantir has significantly raised its guidance for the full year 2025:

• Q2 2025 Revenue: Expected to be between $934 million and $938 million
• Q2 2025 Adjusted Income from Operations: Expected to be between $401 million and $405 million
• Full Year 2025 Revenue: Raised to between $3.890 billion and $3.902 billion (36% annual growth)
• Full Year 2025 U.S. Commercial Revenue: Raised to in excess of $1.178 billion (68%+ annual growth)
• Full Year 2025 Adjusted Income from Operations: Raised to between $1.711 billion and $1.723 billion
• Full Year 2025 Adjusted Free Cash Flow: Raised to between $1.6 billion and $1.8 billion

The company also reaffirmed its expectation for GAAP operating income and net income in each quarter of 2025, underscoring management’s confidence in continued profitability.

The raised guidance for U.S. commercial revenue is particularly notable, with expected growth of at least 68% for the full year, representing a significant acceleration from previous expectations. This reflects management’s confidence in the continued strong adoption of Palantir’s platforms, particularly AIP, by commercial enterprises in the U.S.

Sequential revenue growth is expected to continue into Q2 2025, with guidance implying approximately 6% quarter-over-quarter growth at the midpoint. This suggests ongoing momentum in the business, particularly in the U.S. commercial segment where the company has seen the strongest growth.

The outlook for adjusted income from operations implies continued margin expansion, with an expected adjusted operating margin of approximately 44% for the full year 2025, up from 40% in 2024. This reflects the company’s ability to scale efficiently while maintaining disciplined expense management.