It finally happened. After shares rose more than 250% in value this year, Palantir (NYSE:PLTR) has now surpassed the legendary defense contractor Lockheed Martin in terms of market capitalization. The provider of software and artificial intelligence (AI) for the government, military and big business is posting strong revenue growth and an inflection in earnings. It just reported third-quarter results, sending the stock up 40% in the past month.
Investors are becoming increasingly bullish on Palantir stock. But should they be? Here’s what could happen next for this hypergrowth momentum stock.
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With a market capitalization of $136 billion, Palantir is now one of the largest defense contractors in the world. The aforementioned Lockheed Martin has a market cap of $134 billion, with competitors like RTX companynow one of the few stocks with higher valuations than Palantir.
How did it get here? With modern software solutions for the US military and government agencies. This disrupted legacy systems (or where systems didn’t exist at all), as the US government looks for the best software to stay ahead. Government contracts are large and can expand over time. Therefore, Palantir’s US government revenues continue to grow at a rapid pace. Last quarter, US government revenues grew 40% year over year.
But Palantir doesn’t just sell to the US government. In recent years, the company has expanded to bring its software and AI solutions to large enterprises with great success. Although the US government can spend a lot of money, at the end of the day it is only one customer. Hundreds of companies could use Palantir’s advanced analytics tools, and they are starting to do so.
Increasing demand from the US government and US companies has enabled Palantir to accelerate its revenue growth. Last quarter, U.S. commercial revenues grew 54% year-over-year to $179 million. With the addition of steady government contract growth and a slight headwind from international sales, total third quarter revenue grew 30% year over year to $726 million.
Customer acquisition is growing even faster. Total customers grew 39% year over year in the third quarter and 6% from the second quarter to 629. That may seem like a small number, but remember: Palantir focuses only on the largest companies operating in are looking for custom software. The acceleration after Q3 seems to continue. Palantir closed 104 deals worth more than $1 million in the quarter, which should bring in new revenue-generating customers in the coming years. Given the long-term nature of these contracts, the number of customers is the most important performance measure for investors to track. If customer numbers continue to rise, sales growth will follow.
