(MENAFN- DailyFX (IG)) Q3 financial metrics to watch

Wall Street expects revenue growth to accelerate to 50.4% YoY in Q3, bringing quarterly revenue to $1.092 billion. Analyst estimates exceed the upper end of management's guidance range, setting a high bar for performance.

Adjusted operating income is forecast at $501 million, translating to an impressive 81.5% growth versus the prior year. Operating margin is expected at 43.5%, an improvement from a year ago but a decline from the previous quarter. The margin compression aligns with management's plan to ramp up hiring.

Other measurements revealing the health of revenue diversification, such as customer count and international revenue share, will be closely watched. Any signs of slowing momentum could trigger a sharp sell-off given stretched valuations.

Table 2: Financial results expectations

	Q3 Sep-24 Actual	Q2 Jun-25 Actual	Q3 Sep-25 Estimate	YoY growth analyst estimates
Revenue (US$ million)	726	1004	1092	50.4%
Adjusted operating income (US$ million)	276	464	501	81.5%
Operating margin	38.0%	46.3%	43.5%	5.5pp

Source: Palantir, LSEG as of 29 October 2025

AIP drives commercial acceleration

Palantir's Artificial Intelligence Platform, launched in April 2023, has become the primary growth catalyst, driving a dramatic inflection in commercial revenue. AIP integrates large language models (LLM) into Palantir's platforms like Foundry, enabling enterprises to deploy AI securely within existing data infrastructure.

The platform reduces technical barriers, allowing business users to interact with complex data systems through natural language. This has opened up a much broader addressable market beyond the technical specialists.

Palantir showcased compelling use cases at Q2's earnings call. Fannie Mae uses AIP to detect mortgage fraud, while Citibank deploys it to vet customer applications. These real-world applications demonstrate tangible value creation.

The approach accelerated US commercial revenue growth to 93% in Q2, with customer count increasing 64% YoY. Commercial total contract value surged 222%, indicating strong demand for multi-year commitments.

Figure 1: The Palantir platform Source: Palantir Reliance on government contracts

Despite commercial breakthroughs, government contracts still form the larger part of Palantir's revenue. The split between government and commercial has remained at 55:45 over the past four quarters, highlighting the challenge of diversification.

US government revenue accounts for close to 80% of total government revenue, creating concentration risk. While these contracts provide stable cash flow, they're vulnerable to policy or budget changes beyond the company's control.

In August 2025, Palantir secured a landmark $10 billion US Army contract over 10 years. The deal aims to boost cost efficiency by using technology to reduce spending on jobs and programmes, cementing Palantir's position as a critical defence contractor.

The current US government shutdown, extending into its fourth week, may delay approvals of new contracts or extensions. Any material impact on government revenue growth could weigh heavily on the shares.

International growth lags behind

The company's laser focus on US revenue streams has left international businesses struggling. International commercial revenue declined 3% YoY in Q2, a concerning trend for a company targeting global footprints.

As each regulator scrutinise data privacy differently, Palantir may face challenges replicating its US government and commercial success in overseas markets with different regulatory frameworks.

The company needs to demonstrate that AIP can drive adoption internationally, not just domestically. Any management commentary on international pipeline development could provide reassurance that the addressable market remains vast.

Valuation concerns dominate discussion

While most market participants acknowledge Palantir's phenomenal growth, debate rages over whether the share price is justified. Forward price-to-earnings (P/E) ratio sits at 231x, while forward price-to-sales (P/S) reaches 83x.

These metrics dwarf typical software company valuations. It would take Palantir at least four consecutive years of 50% revenue growth for the P/S ratio to revert to levels where mega-cap technology companies typically trade.

Rich valuations mean there is no room for error. Any financial metrics or forward guidance that question growth sustainability could trigger significant volatility. The August sell-off serves as a reminder of this vulnerability. Shares plunged 25% after setting all-time highs, catalysed partly by a Citron Research report arguing that share prices had detached from business fundamentals.

Table 3: Valuation metrics of large software companies

Company Name	EV/Revenue (NTM)	EV/EBITDA (NTM)	Price/EPS (NTM)	Price/Cash Flow Per Share (NTM)	Price/Book Value Per Share (NTM)	Price/Revenue (NTM)
Palantir	81.43	171.76	231.15	202.57	50.56	82.52
Applovin	30.47	35.34	48.14	44.74	39.21	30.14
CrowdStrike	23.84	85.61	121.91	78.10	27.08	24.59
Palo Alto	13.53	42.61	56.17	40.04	13.53	13.80
Datadog	13.28	54.54	71.78	54.68	12.94	14.03
ServiceNow	12.51	35.23	47.29	34.34	11.78	12.82
Oracle	11.86	21.43	38.37	27.39	18.37	10.77
Microsoft	11.83	19.68	32.78	23.82	8.11	11.84
Intuit	8.72	20.43	28.12	27.46	7.53	8.65
Adobe	5.87	12.05	15.39	14.33	9.71	5.86
Salesforce	5.33	12.93	20.41	15.81	3.53	5.49

Source: LSEG, as of 29 October 2025. Calculations based on SmartEstimate®

Cautious analyst sentiment

Wall Street analysts maintain a cautious stance, with 17 out of 26 assigning 'hold' ratings according to LSEG data. Three analysts recommend 'sell' or 'strong sell', reflecting scepticism about valuations.

The average target price of $155 sits 18% below current levels, despite being revised materially upwards following the Q2 report. This gap suggests analysts believe shares have run too far, too quickly. In more extreme cases, short-seller Citron calculated a fair value of just $40, implying the shares are overvalued by more than 75%.

Figure 2: Wall Street analyst estimates Source: LSEG, as of 29 October 2025 Source: LSEG, as of 29 October 2025

Source: LSEG, as of market close on 21 October 2025

Technical analysis points to key levels

Palantir shares have delivered an impressive run this year, although volatility has been pronounced. The swift recovery from August's sell-off saw shares soar to a new record on 28 October.

The moving average convergence divergence (MACD) indicator has recently turned positive on the daily chart, indicating improving upward momentum. This technical signal suggests buyers are gaining control after August's consolidation.

Should Palantir deliver another exceptional earnings report, shares may climb towards $220, where the boundary of the ascending channel sits. Conversely, disappointing results could drive prices towards the 100-day moving average (MA) at approximately $162. This level has provided support during previous pullbacks and would likely attract buyers again.

Figure 3: Palantir's daily price chart Source: TradingView, as of market close on 28 October 2025. Past performance is not a reliable indicator of future performance. Source: TradingView, as of market close on 28 October 2025. Past performance is not a reliable indicator of future performance.

• This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

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