Why Investors Are Excited About Palantir Stock

Key Points

• Palantir finally broke the $1 billion quarterly revenue mark.

• Both commercial and government segments are delivering.

• Palantir trades at a price-to-earnings ratio of over 800.

• 10 stocks we like better than Palantir Technologies ›

Palantir Technologies (NASDAQ: PLTR) has always been a polarizing name. For years, it was known primarily as a secretive government contractor -- a stock either loved for its big-data capabilities or avoided because of its heavy reliance on public sector work.

But 2025 is shaping up to be a turning point. Palantir just delivered the strongest quarter in its history, with both its government and commercial businesses posting exceptional growth. That's fueling a rally that's made it the best-performing stock in the S&P 500 this year.

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Here's what's driving all the excitement.

Image source: Getty Images.

Palantir just delivered another mind-blowing quarter

2024 was an excellent year for Palantir, as the tech company delivered solid numbers. Revenue grew 29% to $2.9 billion, driven by a 54% surge in U.S. commercial revenue. Adjusted income reached $1.1 billion, and adjusted free cash flow hit $1.3 billion. In other words, it delivered massive growth while achieving solid margins and cash flow, a rare feat among high-growth companies.

While solid, Palantir's 2024 performance was merely a stepping stone for an even more remarkable 2025, as evident in its latest earnings. In the second quarter of 2025, Palantir crossed the $1 billion revenue mark for the first time -- up 48% from the same period last year. The company also reported $326.7 million in GAAP net income, more than double the amount reported for the same period in the previous year.

Management also raised full-year guidance to $4.14 billion to $4.15 billion in revenue, reflecting confidence that the momentum will carry through the rest of 2025.

Strength on both the commercial and government sides

One of the most encouraging signs for long-term investors is that growth is coming from both sides of the business. For perspective, U.S. commercial revenue grew 93% year over year, and U.S. government revenue grew 53% from a year ago.

The commercial segment was the highlight of the quarter, with U.S. commercial revenue alone accounting for around 30% of quarterly revenue. This segment also secured $843 million in contract value, bringing the remaining deal value to $2.8 billion. Some recent wins include a multi-year partnership with Fannie Mae, and a health care rollout with The Joint Commission aimed at improving patient care and safety.

The rapid expansion of the commercial business is critical, as it opens up much larger markets for the company beyond its traditional roots. Particularly, most commercial customers are willing to pay up for world-class artificial intelligence (AI) products and services, leading to higher gross margins and better operating leverage. More importantly, it also assures investors that the company is capable of going beyond its roots, and what has been a promise has now become a reality.

While commercial business provides the upside momentum, the government contracts remain an essential source of income for Palantir. This segment, too, performed remarkably well, thanks to the public sector's rapid adoption of AI. One notable win here is the company's $1.3 billion deal with the Pentagon for Palantir's Maven Smart System. The contract was previously for $480 million to provide AI-powered technologies to the military, but the Pentagon recently increased the project ceiling through 2029.

While some investors prefer commercial over government contracts, having both is the best for Palantir in the long run. After all, a strong government business provides stability, while the expanding commercial segment offers faster growth and diversification. Together, they make Palantir less dependent on any single customer or industry.

Investors' excitement reflected in Palantir's stock price

Palantir's long-term AI prospects have long been a key investment thesis for investors, particularly lately, as the company delivered its record-breaking performance. As of the time of writing, the company has a market capitalization of $443 billion , trading at a price-to-earnings (P/E) ratio of 850.

While value investors (like myself) cringe at such valuation, bulls argue that Palantir's unique positioning in AI, national defense, and enterprise software could justify the premium . One analyst even expects the tech company to reach a $1 trillion market capitalization in the next few years.

In other words, Palantir's stock could continue to rise despite its sky-high valuation.

What does it mean for investors?

Palantir's transformation from a government-focused contractor into a diversified AI software leader is gaining real traction.

The combination of strong execution, expanding commercial adoption, and deep ties to U.S. defense makes it one of the most interesting AI plays in the market today.

Still, the stock's valuation leaves little room for error. Long-term investors who believe in the future of AI may want to keep Palantir on their radar.

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Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.