After Smashing The “Rule Of 40,” Palantir (PLTR) Now Has A “Lack of Downside Catalysts Over The Next 3-4 Quarters,” As Per Morgan Stanley

In what constitutes the biggest surprise of the ongoing earnings season so far, Palantir not only topped expectations for the December-ending quarter but also provided guidance that exceeded even the street-high estimates from UBS. The result: Palantir shares are now up over 20 percent and just shy of a $200 billion market cap!

For the benefit of those who might not be aware, Palantir is an AI-powered Software-as-a-Service (SaaS) provider that allows companies and government agencies to gather and analyze reams of data. The retail-favorite stock had been on a tear even before this week's earnings disclosure, having benefitted immensely from the ongoing AI-related macro tailwind.

On a more granular level, Palantir reported $827.5 million in revenue for Q4 2024, corresponding to a year-over-year growth of 36 percent. What's more, the company now expects to earn between $3.74 billion and $3.76 billion in revenue for the entire FY 2025, handily exceeding consensus expectations of $3.54 billion.

UBS best summarizes Palantir's outperformance by noting:

"The 1Q25/2025 guide of 36%/31% was well above even our Street-high estimates, with the guide for US commercial revs growth of 54% the stand-out."

Coming back, during Q4'24, Palantir closed a whopping 129 deals, with each worth at least $1 million.

In what is a critical insight, do note that Palantir is absolutely smashing performance metrics as envisioned under the so-called "Rule of 40," which posits that a company is healthy if its growth rate plus profit margin either equals or exceeds 40 percent. As of Q4'24, Palantir's "Rule of 40" score sat at an eye-watering 81 percent.

Meanwhile, Wall Street analysts are out in droves today, divulging their thoughts on what lies ahead for the high-flying stock.

Morgan Stanley analyst Sanjit Singh sees little downside for Palantir despite its "ultra premium valuation." The analyst notes:

"Despite an ultra premium valuation, we see lack of downside catalysts over the next 3-4 quarters."

Singh then goes on to point out the stock's bullish catalysts:

"This leaves us with valuation as the primary remaining concern. While we think the long-term return outlook screens unattractive at 52x CY26 sales and 120x CY26 FCF, with 1) revenue poised to grow 30%+ in 2025 – a distinctive level of growth in software (particularly at a scale approaching $4 billion in revenue), 2) a powerful AI story that is resonating in the market at this early stage of the Gen AI cycle and 3) our lack of visibility into the government business, we are left with a lack of fundamental catalysts to see shares re-rate lower over next several quarters."

Elsewhere, Raymond James analyst Brian Gesuale is a little less enthusiastic about Palantir's prospects, given its rich valuation:

"While we remain enthusiastic about Palantir’s longer-term positioning in AI, and see some value as a 'safe haven' in the current environment, we are maintaining our Market Perform rating given our view that shares need to consolidate stellar gains over the last couple of years and grow into its rich valuation."

Of course, Palantir's sky-high valuation is a recurring theme on Wall Street. For instance, back in November 2024, Jefferies analyst had noted with concern that the stock was trading at "well over 2x the next highest software name." Since then, of course, Palantir shares have only widened their valuation premia over their peers.

About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.

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