Palantir (PLTR) Q2 Earnings: 3 Must-Know Insights Before the Big Reveal

Palantir's Q2 earnings drop is coming—will the data giant deliver or disappoint? Here's what's at stake.

The AI hype train: Fuel or folly? PLTR's been riding the artificial intelligence wave hard. But with earnings looming, investors want proof—not just promises—that its tech translates to real revenue.

Government contracts: The golden handcuffs Defense and intelligence work still drives Palantir's bottom line. Any slowdown here could send the stock tumbling faster than a crypto meme coin.

Commercial growth: The billion-dollar question Everyone's watching whether PLTR can finally crack mainstream enterprise markets—or if it'll remain a niche player with a valuation that smells suspiciously like 2021 SPAC fever.

Bottom line: This earnings call will separate the data scientists from the day traders. Place your bets—just don't cry to the SEC when volatility hits.

Image source: Palantir Technologies.

Palantir's growth numbers

Palantir is seeing serious growth since it unveiled its Artificial Intelligence Platform (AIP) in the spring of 2023. AIP uses generative AI to allow users to input commands and lengthy prompts into Palantir's powerful network in order to get real-time insights and predict the outcomes of events.

For government users of Palantir's Gotham platform, it's now much easier to command Palantir to tap into satellite networks to determine where opposing military assets are located, predict the results of operations, make recommendations, and offer insights as real-time battlefield situations evolve. Outside of the military aspect, Palantir's platform will be helping to optimize and orchestrate workflows so users can make better decisions throughout the government.

Commercial users of Palantir's Foundry platform can use AIP to help them manage supply chains, optimize operations, crunch healthcare data, and reduce manufacturing costs.

The company is seeing rapid growth in both platforms. While Palantir has long been recognized as a key government contractor, its commercial contracts in the first quarter were up 33% from a year ago, reaching $397 million. Much of that growth came from U.S.-based clients, where revenue jumped 71% from a year ago to reach $255 million. Government revenue was up a whopping 45% on a year-over-year basis to $487 million, with the lion's share ($373 million) coming from U.S. government contracts.

That's leaving Palantir flush with cash. The company ended the first quarter with $370 million in adjusted free cash flow, up from $149 million a year ago, and $5.4 billion in cash and cash equivalents with zero debt.

Key metrics to consider on Aug. 4

While Palantir's growth numbers are impressive, it's hard to say that the company is fairly valued today. Any company with a P/E ratio over 600 has far overextended its fair value -- and that's OK if you believe, as I do, that Palantir is a transformative company with a true value that still hasn't been recognized. But that belief isn't going to protect you if Palantir disappoints investors when it reports its Q2 earnings.

How WOULD that happen? There are a few metrics I'll be looking at.

Palantir's commercial customer count grew by 46% in the last year and by 9% on a quarterly basis. It needs to keep that momentum going by signing some big deals. In the first quarter, Palantir inked 139 deals of at least $1 million, and 31 of those were worth more than $10 million.

Palantir needs to keep the money coming in. Remember, commercial work ROSE 33% on a year-over-year basis in the first quarter, and government work was up 45%. A slowdown would be impactful to the Palantir stock price. For the record, Palantir issued guidance for second-quarter revenue in a range of $934 million and $938 million. The midpoint of that would be a 47% overall increase from a year ago. That's a big number, but I think it's achievable.

This is the backlog -- the amount of revenue that Palantir has locked in by contracts it signed with government and commercial clients, but the work hasn't been delivered or paid for yet. Palantir's backlog at the end of the first quarter was $1.9 billion and has been steadily growing over the last two years.

Source: Palantir Technologies

Palantir's backlog is accelerating, and the company needs to continue to grow its RPO at a decent clip. Anything below $2.05 billion will be a red flag, and anything above $2.15 billion will be a huge signal that Palantir's growth story is still cooking.

How to invest in Palantir today

I'm an unabashed fan of Palantir, but I'm not going to be adding to my position this week. If you're looking to invest, I suggest a dollar-cost averaging strategy that will protect you from volatility if the stock drops but will still give you some benefits should the stock continue to show power.

Regardless of how Palantir does in its report, I'm holding the stock because I believe that it will continue to deliver -- despite its steep valuation and high expectations from Wall Street.