According to Fortune, Palantir delivered third-quarter revenue of $1.2 billion, representing 63% year-over-year growth and exceeding analyst expectations of $1.09 billion. The company reported $476 million in net income, up 40% from the previous year, with U.S. commercial customer business driving much of the growth by expanding 121% to $397 million. CEO Alex Karp described the results as “arguably the best results that any software company has ever delivered,” highlighting the company’s “Rule of Forty” metric reaching 114%. Despite these strong numbers, Palantir shares fell approximately 3.5% in after-hours trading, continuing a pattern where even exceptional performance fails to satisfy investor expectations. This disconnect between operational success and market reaction reveals deeper challenges facing the company.
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The Valuation Conundrum
Palantir’s fundamental challenge remains its premium valuation in a market increasingly skeptical of AI hype. While the 63% revenue growth is impressive, it comes against the backdrop of a stock that has already soared roughly 400% over the past year. The market capitalization now prices in near-perfect execution for years to come, leaving little room for error. What’s particularly telling is that even beating expectations by over $100 million couldn’t sustain positive momentum—suggesting the bar has been set impossibly high. This phenomenon isn’t unique to Palantir; we’ve seen similar patterns with other AI-adjacent companies where extraordinary growth becomes the baseline expectation rather than the exceptional outcome.
The Michael Burry Factor
The revelation that Michael Burry has taken a short position against Palantir, as shown in regulatory filings, adds significant weight to the skepticism narrative. Burry’s track record of identifying overvalued assets, particularly during the 2008 financial crisis, gives his bearish stance outsized influence. His simultaneous short positions in both Palantir and NVIDIA suggest he sees broader AI exuberance rather than company-specific issues. While individual short positions don’t dictate market direction, Burry’s involvement signals that sophisticated investors see structural vulnerabilities in the current AI valuation landscape that may not be apparent in quarterly earnings reports.
The Commercial Business Double-Edged Sword
Palantir’s 121% growth in U.S. commercial business represents both opportunity and risk. While diversifying beyond government contracts is strategically sound, commercial customers tend to be more fickle and price-sensitive than government clients. The enterprise sales cycle for commercial AI implementations is notoriously long and expensive, and we’ve seen numerous examples of companies scaling back ambitious digital transformation projects during economic uncertainty. The partnership with NVIDIA, while strategically interesting, also ties Palantir’s fortunes more closely to the semiconductor giant’s ecosystem—creating both dependency and concentration risk if the broader AI infrastructure market faces headwinds.
Karp’s Rhetoric as Market Signal
Alex Karp’s increasingly combative tone toward skeptics may itself be a concerning indicator. When executives spend significant energy “rubbing numbers in the faces” of detractors rather than focusing purely on business execution, it often signals underlying defensiveness about sustainability. The political commentary about fentanyl and cultural critiques in shareholder letters, while consistent with Karp’s style, risks alienating portions of the investor base who prefer apolitical business focus. More importantly, the triumphalist language about “best results ever” sets expectations at levels that may be mathematically impossible to maintain as the company’s revenue base expands.
The Rule of Forty Mirage
While Palantir’s 114% “Rule of Forty” score appears impressive, this metric becomes less meaningful as companies mature. The calculation combines growth rate and profit margin, creating a number that can be artificially inflated during periods of rapid expansion from a smaller base. As Palantir’s revenue approaches the $5 billion annual run rate, maintaining such extraordinary growth percentages becomes progressively more challenging. Historical precedent from other high-growth software companies shows that Rule of Forty scores typically normalize toward industry averages over time, suggesting Palantir’s current metric may represent a peak rather than a sustainable plateau.
Realistic Outlook
The fundamental question for Palantir investors isn’t whether the company is growing rapidly—it clearly is—but whether the current valuation adequately prices execution risk in an increasingly competitive AI platform market. Companies like Microsoft, Google, and Amazon are aggressively moving into enterprise AI services, often leveraging their existing cloud infrastructure advantages. Meanwhile, the after-hours stock decline suggests that even exceptional performance may not be enough to justify current multiples if growth shows any signs of deceleration. For long-term investors, the key will be watching whether Palantir can convert its current momentum into durable competitive advantages that withstand both economic cycles and intensified competition.
