Palantir Outgrows Its Defense Roots as Commercial Revenue Leads

Revenue rose 96% to $2.31 billion and guidance climbed again. But with the shares near 114 times forward earnings, investors are now paying for durability rather than another beat.

Key Takeaways

• U.S. commercial revenue jumped 148% to $984 million. That put it past U.S. government revenue of $953 million for the first time at a company built on defense and intelligence work.
• Revenue of $2.313 billion beat guidance by about $150 million, adjusted operating margin held at 62%, and full-year guidance rose to $8.53 billion, roughly $330 million above consensus.
• Bookings slowed sharply, with U.S. commercial contract value well below June’s record. The stock closed 3.1% lower before the release and moved only modestly in extended trading.

The Crossover

For most of its history, Palantir has been defined by the agencies that buy from it. That changed in the third quarter. U.S. commercial revenue surpassed U.S. government revenue for the first time ever, rising 148% year-over-year and 29% quarter-over-quarter to $984 million. Government revenue grew 96% to $953 million. The commercial business was long dismissed as a costly sideline to the real franchise. It is now the larger half of a domestic operation that produced $1.937 billion, about 84% of the company’s sales.

The overall numbers were just as strong. Revenue grew 96% year-over-year and 20% quarter-over-quarter to $2.313 billion, the first quarter above $2 billion. Management had guided to between $2.160 – $2.164 billion, so the result beat its own forecast by roughly $150 million. The company reported EPS of $0.44 versus the $0.4061 consensus estimate, while revenue of $2.31 billion topped the $2.18 billion estimate. In August, analysts counted a twelfth consecutive quarter of accelerating growth. Growth of 96%, up from 93%, makes it thirteen.

What Sovereignty Sells

Alex Karp has a name for the forces behind the surge. In the release, he argued that the Sovereign AI movement is creating “the most dramatic dichotomy between haves and have nots” of his career. The commercial logic is simpler than the rhetoric. Large institutions want to train models on their own data, keep the model weights inside their own perimeter, and avoid dependence on frontier laboratories. Palantir has spent the summer turning that preference into a product line. In June it launched an engine with NVIDIA that lets government agencies and critical U.S. companies retain sovereignty over their AI systems. Two Sovereignty Bootcamps then drew nearly 200 unique organizations in under 30 days. In September, Palantir named Nebius its preferred sovereign AI infrastructure partner. It also hired former AIG chief Peter Zaffino as Global Head of Financial Services, effective January 15, 2027.

The demand is visible in deal sizes. Palantir closed 212 deals of at least $1 million, 107 deals of at least $5 million, and 64 deals of at least $10 million. Bookings are more subdued. Total contract value of $2.918 billion rose only 6%, and $1.463 billion of U.S. commercial TCV, up 11% year-over-year, was far below the second quarter, when US commercial TCV bookings surged 153% year-over-year to $2.132 billion. U.S. commercial remaining deal value of $6.517 billion, up 79% year-over-year and 4% quarter-over-quarter, makes the same point. Revenue is now catching up with commitments signed earlier. Whether new signings speed up again will matter more to 2027 forecasts than any single quarter’s beat.

The Government Book, and the World Beyond It

Falling to second place has done nothing to slow the government business, which grew 18% sequentially. Recent awards show programs moving from experiment to standard use. In September the Army gave Palantir $127 million while Anduril secured a $65 million deal to work on delivering an initial eight TITAN intelligence ground stations. Production contracts matter more for their status than their size. Once software is built into a procurement line, it tends to be renewed, so the government book compounds more slowly but more steadily than the commercial one.

International results are more modest. Subtracting U.S. sales from the total leaves roughly $376 million of international revenue. That is about 26% higher than a year earlier but only 4% above the second quarter, when International Commercial Revenue: $182 million and International Government Revenue: $181 million together came to about $363 million. The gap is telling. The sovereignty pitch should land well with European and Asian institutions wary of American AI laboratories. Yet growth remains overwhelmingly domestic, perhaps because sovereignty, seen from Brussels or Seoul, also argues for caution toward an American software vendor. For now, Palantir depends on U.S. budgets and U.S. corporate spending more than its global ambitions would suggest.

Margins, Cash and a Higher Ceiling

Profits kept pace with revenue. Palantir posted GAAP income from operations of $1.085 billion, representing a 47% margin, and adjusted income from operations of $1.427 billion, representing a 62% margin, comfortably above guidance. The $342 million gap between the two, about 15% of revenue, is mostly stock-based compensation, a cost that remains real even at this scale. GAAP net income of $1.128 billion came in above operating profit, and adjusted free cash flow of $1.216 billion, representing a 53% margin, raised cash and Treasuries to $10.4 billion, from about $9.2 billion in June. The Rule of 40 score of 158%, growth plus margin, has few peers in software.

The outlook went up again. For the fourth quarter, Palantir expects revenue of $2.649 billion to $2.653 billion. … Full-year revenue guidance rose to $8.530 billion to $8.534 billion, above the $8.2 billion analyst estimate, with U.S. commercial revenue of more than $3.559 billion, growth of at least 143%. Guidance for adjusted operating income of $5.245 billion to $5.249 billion also came in above the $4.79 billion estimate. In February, the company guided to full-year 2026 revenue of $7.18 billion to $7.20 billion. Nine months later, that figure is about $1.34 billion higher.

A Market That Has Already Paid

The market’s reaction was muted. Palantir shares fell 6.3% on Friday to $184.11 and another 3.1% on Monday to $178.34 before the release. In early extended trading they recovered only 1.3%, to $180.67 by 4:46 p.m. Eastern. August was very different. After the second-quarter report, the stock jumped 29.5%, having been down 29% for the year going in. This time the shares came into the report well below their 52-week high of $212.94 and close to where they started the year, after a mid-October sell-off that hit software stocks across the sector.

Valuation explains the restraint. Before the report, Palantir traded at 261x trailing earnings and about 114x FY2026 earnings estimates. Analysts remain divided. Baird reiterated its Outperform rating, while RBC Capital kept its Underperform rating, and the consensus price target stood at $218.95. Palantir has now settled the question that hung over it for three years, whether a defense software company could build a commercial business of equal size. The next question is harder and cannot be answered in one quarter. Can slowing bookings, a lagging international business and a fourth quarter that requires another large sequential step support a valuation that already assumes all three will turn out well?