Palantir (NASDAQ:PLTR) just about doubled its revenue in fiscal Q2 2026, up 93% to $1.935 billion, and turned 47% of it into GAAP operating income. That’s a startling pair of numbers. So is this one: the stock trades at 116.90 times forward earnings, while its sector sits at 23.77.
The company builds data and AI software for U.S. government agencies and commercial customers. Government is still the bigger piece in the U.S., at $809 million versus $764 million for commercial. But commercial grew 149% in the quarter, and government managed 90%.
So is a premium like this earned? That depends on how long growth can run at this pace, and how solid the contracts behind it really are.
Customers Are Signing Bigger Deals, and More of Them
The clearest sign of Palantir’s edge is what customers actually do. In the quarter, the company closed 220 deals worth at least $1 million, 98 worth at least $5 million, and 73 worth at least $10 million. U.S. commercial remaining deal value (contracted revenue that hasn’t been recognized yet) hit $6.238 billion, up 124% from a year earlier.
CEO Alex Karp’s pitch is simple enough. Customers want to keep control of their own data and decisions, and they don’t want their competitive edge turning into training material for someone else’s AI models. The numbers suggest buyers agree, with a Rule of 40 score (revenue growth plus adjusted operating margin) of 155%. Not every AI software seller is growing this fast, and this enterprise software rival shows a slower path.
Guidance Keeps Moving Up, and Profits Are Following
The outlook moved up, too. Full-year 2026 revenue guidance now sits between $8.150 billion and $8.158 billion, and the U.S. commercial target rose to more than $3.424 billion, a growth rate of at least 134%. For the third quarter, the company is guiding to $2.160 billion to $2.164 billion in revenue.
Profit is keeping up. GAAP net income came in at $1.062 billion, a 55% margin, and adjusted free cash flow was $1.220 billion, a 63% margin. There’s $9.2 billion in cash and short-term Treasuries, and management expects GAAP operating and net income in every quarter this year. If the moat is the question, the spending says it’s widening. Investors weighing this one may also want a look at other AI stocks with very different price tags.
Is the Price Running Ahead of the Business?
Not everyone’s convinced. Michael Burry said in a Substack post, CNBC reported, that he still holds long-dated Palantir puts, a bet he started in fall 2025. Valuation is the obvious target: 55.40 times forward sales, against 3.53 for the sector. And Palantir’s own release carries a caveat. Its deal values assume customers exercise every option and cancel nothing, yet most contracts can be terminated, including for convenience.
Profit answers part of that. The 47% GAAP operating margin already absorbs $265.209 million of stock-based compensation, so the earnings aren’t just an adjustment story. The contract caveat is tougher to wave off, because backlog is a softer promise than it sounds. Burry’s bets reach past Palantir, too, to another AI favorite.
A Discount to Its Own History, a Premium to Everyone Else
Start with the one piece of good news: at 116.90 times forward earnings, Palantir trades below its 5-year average of 125.51. Put plainly, investors are paying $116.90 for every dollar of expected earnings. That’s a discount to history, but not to anyone else. The sector sits at 23.77, and sales tell the same story, with 55.40 times forward sales against 3.53. Those multiples are paying for years of growth, not just next year’s.
Then there’s the growth itself. Expected EPS growth is 44.69% in 2027, well below the 93% revenue growth in the latest quarter, so a slowdown is already built into the estimates. We will focus on GAAP earnings, since stock-based compensation is a real cost, and quarterly EPS was $0.41 on both a GAAP and an adjusted basis. A premium this wide leaves little room for a quarter that only meets expectations.
Hedge funds are a bit cooler. Interest declined, with 86 funds holding the stock in the most recent quarter, down from 96 in the prior one. Short interest is 2.62% of the float, which is relatively limited bearish positioning given how loudly the skeptics have spoken.
A Premium Earned, but How Wide?
So where does that leave things? The business has clearly earned a premium: revenue is nearly doubling, profits hold up on a GAAP basis, and guidance keeps climbing. Whether it has earned a forward P/E this far above the sector’s is a closer call, since the multiple leaves little room to slip. The setup suits investors with long horizons and a strong stomach for sharp swings. A quarter where U.S. commercial growth falls well short of its guided path, or where big contracts get canceled, would change the picture.
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This article is originally published at Insider Monkey.
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