Goldman Sachs: Palantir beats third-quarter expectations, while short contracts test sovereign AI growth

Why were third-quarter results stronger than expected?

Palantir’s third-quarter revenue was 2.313 billion dollars, up 96% year over year, faster than the 93% growth in the second quarter. Revenue was 7% above market consensus, and the operating margin was about 2 percentage points above consensus.
Commercial revenue was 1.17 billion dollars, up 114% year over year; government revenue was 1.15 billion dollars, up 82% year over year. The company also raised its 2026 revenue guidance to a level 5% above market consensus, with operating margin guidance about 1.5 percentage points above consensus.
Despite the earnings beat, shares fell about 3% in after-hours trading. Goldman Sachs believes the muted reaction may be related to slower growth in forward-looking contract metrics.

Third-quarter US commercial total contract value (TCV) was 1.5 billion dollars, up 11% year over year, compared with 153% growth in the previous quarter; remaining deal value (RDV) was 6.5 billion dollars, with growth falling from 124% to 79%.
Growth in current remaining performance obligations (cRPO) slowed from 105% to 88%. These metrics are still growing, but the slower pace weakens the direct support they provide for expectations of future growth.
The company attributed some of the changes to shorter contract terms: sovereign AI customers are increasingly signing short initial agreements to deploy quickly and demonstrate value. Deals lasting less than 12 months are excluded from RPO; TCV also fluctuates with contract duration and the mix of renewals and expansions.

Goldman Sachs believes sovereign AI could become the next phase of enterprise AI transformation in 2027, and that Palantir is well positioned. The key is converting initial short-term contracts into long-term commitments; the bank noted that the company has done this successfully before.
Following recent expansions, some pilots have annual contract values approximately 5 to 15 times their original levels: one home appliance company’s contract rose from 1 million dollars to 15 million dollars, with use expanding across commercial, finance and supply-chain functions.
Average annualized revenue per US commercial customer was about 5.7 million dollars, up roughly 20% quarter over quarter and 90% year over year. On this basis, Goldman Sachs believes visible returns on investment can encourage customers to expand deployments and purchases.

Goldman Sachs does not expect revenue growth to accelerate further, but believes it can remain very high over the next several quarters and that 2029 revenue could be 20% to 35% above market consensus.
The bank raised its 2027 revenue forecast from 13.233 billion dollars to 13.571 billion dollars, and its 2029 forecast from 25.747 billion dollars to 26.399 billion dollars.
Goldman Sachs maintained its Buy rating and raised its 12-month price target from 230 dollars to 235 dollars. The valuation is based on 60 times expected 2029 GAAP earnings per share, discounted to the forward period used in its coverage framework.