Palantir’s 'Nonsensical' Pullback After Earnings Is Missing the Point

Following up on our earlier Palantir (PLTR) comments, we are reiterating our One rating and our $220 price target.

We will also share that we will look to add to the Pro Portfolio’s PLTR position in the coming days as the shares digest the post-earnings response, which in our view, is rather nonsensical.

Now let’s dig into things with a fine-tooth comb.

By the Numbers

For first-quarter 2026, Palantir posted EPS of $0.33 on revenue of $1.63 billion, besting the consensus forecast of $0.28 on revenue of $1.54 billion. Compared to the year-ago quarter, the company’s top line rose just shy of 85%, with U.S. commercial up 133%, year over year, to $595 million and U.S. government revenue climbing 84%, year over year, to $687 million. For those keeping track, on a quarter-over-quarter basis, those figures were up 18% and 21%, respectively.

With the U.S. business accounting for 79% of Palantir's total revenue in the quarter, the other 21% of revenue grew at a “slower” rate of 37% year over year. Breaking it down, international commercial revenue rose 26% year over year and 5% sequentially, to $179 million, while international government revenue was up 51% year over year and 7% sequentially, to $172 million.

While it’s true that the year-over-year growth rate for the U.S. commercial business was a few points shy of the market consensus of 137%, we’d counter that with the fact that out of the 30+ Wall Street recommendations on the shares, 10 are "Hold" ratings vs. 20+ "Buy" or "Strong Buy" ones. In our time on the sell-side, we’ve seen many folks keep their forecasts on the high side if only to justify their Hold ratings.

Our take is that 133% is still up substantially year over year, and in our view, the step up in total remaining contract value to $11.8 billion from $10.8 billion exiting 2025 is a figure that deserves far more attention. Not because it was up 97% year over year, but because of the revenue visibility it brings.

On that note, customer counts and deal sizes at Palantir continue to grow, reflecting rising AI adoption and expanding usage. For Q1 2026, customer count grew 31% year over year and 6% sequentially, to 1,007. Trailing 12-month revenue from the company’s top-20 customers increased 55% year over year, to $108 million per customer. U.S. commercial customer count grew to 615 customers, up 42% compared to the year-ago quarter.

Some will discuss the more than doubling in Palantir’s reported operating margin to 46% in Q1 2026 from ~20% in the year-ago quarter and 41% in Q4 2025. What we’ll call out on top of that is the incremental operating margin, which showcases the incremental profit per dollar or revenue. That figure was 77% in Q1 2026, and this tells us Palantir is becoming more profitable per additional revenue dollar.

That also helps explain the massive operating cash flow generated in the quarter, $899 million reported or ~$925 million on an adjusted basis. That helped lift Palantir’s cash position to just over $8 billion exiting Q1 2026 with no debt, pegging net cash per share at more than $3.

Palantir’s Guidance

Here is what the management team shared in terms of forward guidance on Monday night’s earnings call:

For the current quarter, revenue is seen between $1.797 billion and $1.801 billion, and adjusted income from operations between $1.063 billion and $1.067 billion.

For 2026, Palantir raised its revenue guidance to $7.650 billion- $7.662 billion, which includes a boost to its U.S. commercial revenue guidance to more than $3.224 billion, representing a growth rate of at least 120%. That compares to its January guidance of $7.182 billion - $7.198 billion for total revenue this year, with U.S. commercial revenue more than $3.144 billion. Looking at the total revenue, the revised guidance implies for Q2-Q4 2026 an increase of ~96% compared to Q2-Q4 2025. Measured against Palantir’s step up in total contract value, rising customer count, and expanding customer relationships, we find that to skew conservative.

But the real eyebrow raiser in Palantir’s guidance was the revised adjusted operating profit guidance of $4.44 billion-$4.452 billion, up from $4.14 billion in January, and the corresponding step up in operating cash flow to ~$4.3 billion.

Why Palantir Shares Are Trading Off

When we look at Palantir’s results and guidance, we suspect there are two factors weighing on the shares. And yes, they are the same two we’ve contended with when the company has reported in the past – guidance that skews conservative, and the valuation of its shares.

Understanding the trend in total contract value and rising customer count, we can live with the conservative guidance. When those figures start to stall, that will be a warning sign for us, as will margin improvement.

On the valuation front, once again folks are grumbling about the P/E ratio. However, as we’ve frequently argued, that is not the proper metric by which to value PLTR shares. While Palantir’s guidance is arguably conservative, it is still at a high growth rate and that means looking at the shares on a price-to-earnings growth, or PEG ratio, basis. We use dividend yield when evaluating dividend-paying companies, and the PEG ratio when evaluating high-growth companies.

Based on current consensus EPS figures, which could inch up some or even more in the coming days, between 2025-2028, Palantir is expected to grow its EPS to $2.79 from $0.75. That’s a compound annual growth rate of ~55%.

Given the total contract value, rising margins and expanding use of AI, looking at 2027 EPS of $1.94, PLTR shares are currently trading at a PEG ratio of 1.3x. Our $220 price target, using those same EPS and EPS CAGR figures, equates to a multiple of 2.06.

So, while some are waving their arms up and down that PLTR is not cheap, we’d argue they simply aren’t looking at the stock with the right lens.

At the time of publication, TheStreet Pro Portfolio was long PLTR.