How far can third-quarter revenue exceed guidance?

  • Morgan Stanley expects Palantir’s third-quarter revenue to reach approximately 2.27 billion–2.29 billion dollars, 5%–6% above the midpoint of the company’s guidance of 2.16 billion–2.164 billion dollars, corresponding to year-over-year growth of approximately 92%–94%. The company’s second-quarter revenue grew 93% year over year; if third-quarter growth exceeds that level, it will mark the 13th consecutive quarter of accelerating growth.
  • The bank’s expected beat is smaller than the actual 7.6% by which second-quarter revenue exceeded the guidance midpoint, and below the 7.2% average over the previous four quarters. Channel feedback remains positive: one partner’s business grew 36%–37%, approximately 5 percentage points above its own plan; another reported growth of 36%–45%.

Why is the US commercial business the key variable?

  • US commercial revenue grew 149% year over year in the second quarter, while the total contract value of new orders rose 153% and remaining deal value increased 124%, supporting future revenue. Morgan Stanley expects the business’s third-quarter growth rate to exceed both its previous forecast of 134% and the market consensus of 137%.
  • However, the year-ago comparison base is higher in the third quarter, and growth in the number of US commercial customers has slowed from 42% in the first quarter to 35% in the second. The bank therefore sees further acceleration as unlikely; maintaining revenue growth of around 140% would be a positive result. Management hopes the business will grow by approximately 100% in 2027.

Where does enterprise AI demand come from, and what constrains it?

  • Partner feedback indicates that large enterprises’ data modernization projects and the shift of IT budgets toward data infrastructure and AI are supporting demand. Palantir’s ontology layer helps customers connect dispersed data assets with operational systems, while AIP uses that context to drive action in critical business processes.
  • Channel feedback suggests direct competition is limited, but views on pricing differ: one partner believes differentiated value supports a premium, while another points to high upfront costs and reliance on on-site engineers as potential obstacles relative to Microsoft and Databricks. The research also provides limited support for an acceleration in new customer acquisition.

How demanding are the hurdles for fourth-quarter guidance and valuation?

  • Morgan Stanley considers fourth-quarter guidance more important than the third-quarter beat itself: market consensus puts fourth-quarter revenue at 2.463 billion dollars, up approximately 75% year over year. If third-quarter revenue exceeds guidance by 5%–6% and the company then guides for 12% sequential growth in the fourth quarter from that base, implied year-over-year growth would reach approximately 80%, well above consensus.
  • The bank’s own model forecasts fourth-quarter revenue of 2.426 billion dollars, up 72.4% year over year and below consensus, reflecting the potential for growth to slow in its model. Although positive on near-term demand, Morgan Stanley notes that the company is valued at approximately 70 times 2027 free cash flow, leaving limited room for error. It therefore maintains its Equal-weight rating and 205-dollar price target while waiting for a more attractive entry price.