JP Morgan comments on Palantir's earnings report: The company's guidance is too conservative, and $10 billion in revenue is just around the corner

Palantir has solidified its position as an AI winner with record-breaking performance. The data analytics company saw its revenue growth accelerate to 70% in the fourth quarter of 2025, marking the tenth consecutive quarter of growth acceleration, with an operating margin reaching 57%. Morgan Stanley analysts believe that with a growth guidance of 61% for 2026, Palantir is on track to achieve $10 billion in revenue at possibly the fastest growth rate and highest profit margin in the history of the software industry.

According to Wind Trading Desk, in the recently concluded fourth quarter of 2025, Palantir's revenue grew by 70% year-on-year, surpassing the previous quarter's 63% and significantly exceeding the market's general expectation of 62%. This growth was primarily driven by explosive performance in the U.S. market, where U.S. commercial business surged by 137% year-on-year, and U.S. government business accelerated to 66%.

Looking ahead to the 2026 fiscal year, Palantir has set a revenue growth target of 61%, expecting revenue to reach approximately $7.19 billion. However, Morgan Stanley analysts Sanjit K Singh and Keith Weiss pointed out in their report that given the strong momentum of U.S. commercial business and improved order coverage, this guidance appears "too conservative." The firm believes that with the rapid adoption of AIP (Artificial Intelligence Platform) products, the company is likely to achieve better-than-expected growth, thus raising revenue and profit margin expectations for the next two years.

Morgan Stanley maintained an "Equal-weight" rating on Palantir and kept the target price at $205. Analysts emphasized that through the combination of AIP, Ontology, and AI Forward Deployment Engineers (AI FDE), Palantir is significantly shortening the value realization cycle for customers, enabling them to deploy dozens or even hundreds of use cases in a short time, thereby driving larger initial deals and faster subsequent expansions.

Revenue and Profit Margins Break Records

Palantir demonstrated the fastest revenue growth since going public in the fourth quarter. Data shows that total revenue for the quarter reached $1.407 billion, exceeding market consensus expectations by about 5%. This marks the company's tenth consecutive quarter of accelerating growth. On the profit side, strong revenue growth effectively translated into improved profit margins. The adjusted operating margin reached 56.8%, an increase of 1,174 basis points year-on-year, and 460 basis points above market expectations. Additionally, free cash flow (FCF) reached $791 million, corresponding to a free cash flow margin of approximately 56%.

The U.S. market was the core driver of performance this quarter. U.S. commercial business revenue reached $507 million, a year-on-year increase of 137%, marking the fifth consecutive quarter of accelerated growth for this segment. U.S. government business also performed well, with revenue reaching $570 million, a year-on-year increase of 66%, up from 52% in the third quarter. In contrast, international markets showed slightly lagging performance, with growth rates for international commercial and government business both slowing

The 2026 Guidance is Viewed as Conservative

Despite the management's guidance for a 61% revenue growth for the full fiscal year 2026 and an expected operating margin of about 56%, Morgan Stanley believes this forecast leaves room for improvement. Analysts point out that the guidance is supported by an expectation of a 115% growth in U.S. commercial business. However, in terms of order coverage ratio, the company's performance visibility entering 2026 is better than at the beginning of 2025.

Research data shows that Palantir's order coverage ratio for its U.S. commercial business was about 60% entering 2025. By entering 2026, this coverage ratio has increased to 72%. As of the end of the fourth quarter, the remaining deal value for the U.S. commercial business was $4.38 billion, a year-on-year increase of 145%. Based on this, Morgan Stanley believes that the U.S. commercial business is likely to outperform the company's growth targets, and the current guidance has proven to be conservative.

AI-Driven Rapid Customer Expansion

Palantir's growth momentum primarily stems from its unique AI deployment model. By combining AIP, Ontology, and AI forward-deployment engineers, the company enables customers to quickly see the value of its products. This ability to "shorten the time to value realization" results in larger initial deployment scales and increased spending from high-consumption customers.

This trend is directly reflected in customer retention data, with the net dollar retention rate in the fourth quarter rising from 134% in the third quarter to 139%. In terms of orders, Palantir completed 180 transactions exceeding $1 million in the fourth quarter, 84 exceeding $5 million, and 61 exceeding $10 million. The total contract value (TCV) reached $4.26 billion, a year-on-year increase of 138%. Among these, the total contract value in the U.S. market grew by 67% year-on-year to $1.34 billion.

Upgraded Expectations and Valuation Logic

Based on strong performance and sustained growth momentum, Morgan Stanley has raised its financial forecasts for Palantir. The firm has adjusted its revenue growth expectations for 2026 and 2027 from 50% and 45% to 61% and 45%, respectively. At the same time, the expected operating margins for 2026 and 2027 have also been raised to 57.5% and 60.0%, respectively. Correspondingly, the free cash flow forecasts for the next two years have been raised to $4.1 billion and $6.2 billion.

In terms of valuation, Morgan Stanley maintains a target price of $205. This valuation is based on a multiple of 55 times the estimated free cash flow for 2030 ($15.5 billion), discounted back to 2027 at a weighted average cost of capital (WACC) of 13%. Analysts point out that a 55 times FCF multiple corresponds to a growth-adjusted multiple of 1.6 times, which is roughly in line with the median of 1.5 times for large-cap software companies