Palantir and Apple earnings: Strong revenue, but bookings and margins under pressure

Why did Palantir shares fall despite strong revenue?

Third-quarter revenue was $2.313 billion, up 96% year over year and accelerating from 93% in the previous quarter. It exceeded Wall Street’s $2.17 billion forecast and fell within the buy-side expectation range of $2.28 billion to $2.32 billion. Shares fell about 7% after the results as attention turned to forward-looking order metrics.
Total contract value grew just 6% year over year, compared with 49% in the previous quarter; U.S. commercial contract value rose 11% year over year, versus 153% in the previous quarter, and fell 31% sequentially. Total remaining deal value rose just 2% sequentially, while remaining performance obligations were flat.
Management attributed the slowdown to several sovereign AI deals lasting less than 12 months and the mix of renewals and expansions. Short-term contracts are not annualized in total contract value and are not included in remaining performance obligations; management said annualized bookings growth remained within the range of recent quarters.
Short contracts also create a visibility issue: a smaller proportion of 2027 revenue is already contracted, and net new U.S. commercial customer additions slowed for a second consecutive quarter. On the other hand, billings grew 100% year over year and net retention rose to 165%, indicating that expansion among existing customers remained strong.

Third-quarter U.S. commercial revenue grew 148% year over year and 29% sequentially, exceeding the U.S. government business for the first time. Growth came from existing customers: average revenue per U.S. commercial customer over the past 12 months rose 88% year over year, and four pilots cited by management expanded roughly 4 to 15 times within one or two quarters.
The company’s sovereign AI offering lets customers fine-tune open-weight models using their own business data and continuously update the models through software. Management believes the value lies in connecting data, model training and actual workflows; for example, L3Harris achieved results on specific tasks that were better than those of its frontier model at approximately 95% lower cost.
The midpoint of the company’s fourth-quarter revenue guidance was $2.651 billion, up 88% year over year and above Wall Street’s $2.46 billion estimate. The report calculated that actual revenue would need to exceed the guidance midpoint by about 4% for year-over-year growth to continue accelerating; management said not to expect an upside as large as the third quarter’s 7% beat against the midpoint.

The third-quarter adjusted operating margin was 61.7%, above market expectations of about 60% but flat sequentially. The adjusted gross margin fell 1.2 percentage points sequentially to 85.1% because the company assumed a full quarter of hosting costs after taking over cloud hosting for a government customer.
U.S. government revenue grew 96% year over year, accelerating for a fourth consecutive quarter. But the report noted that the fiscal year-end in September may have boosted the quarter’s performance, some Maven-related work lacks multiyear funding, and the 11 December federal funding deadline is another near-term variable.

Apple’s iPhone revenue in the quarter ended in September was $57.6 billion, up 17.5% year over year and above the $56.6 billion market estimate; Greater China revenue rose 21% year over year to $17.5 billion, a record for the region in the quarter ended in September.
But overall gross margin guidance for the quarter ending in December was 45% to 46%, with a midpoint about 1.2 percentage points below market expectations and below the 46.9% recorded in the quarter ended in September excluding refunds. Management attributed almost all of the earlier gross margin decline and most of the current decline to memory costs; the Siri AI ramp-up also added costs.
Management expects memory prices to continue rising after the quarter ending in December, leading the report to conclude that the quarter is unlikely to mark the gross margin low. Apple’s manufacturing purchase obligations rose $33 billion sequentially, helping secure supply while also locking in higher prices; Mac and iPad will remain constrained by memory supply in the quarter ending in December.

Services revenue in the quarter ended in September was $31.6 billion, up 9.8% year over year, below the 12.1% growth in the quarter ended in June; the company’s guidance for 8% to 9% growth in the quarter ending in December was about 2 to 3 percentage points below market expectations. Exchange rates explained part of the slowdown, App Store revenue has shifted to flat year over year, and management also identified third-party licensing as a major drag in the next quarter.
Cloud inference costs for Siri AI are included in services costs; starting in the quarter ending in December, Apple will also defer some device revenue. The company plans to generate subsequent revenue through usage limits on server-side features and paid iCloud+ upgrades.