Palantir’s management has been trying to convince people for the last year that its AI platform isn’t simply a fancy demo, but also a solution that corporations and governments are eager to purchase in large quantities.
The data analytics company’s most recent quarter backs this up with rapid growth, rising margins, and excellent cash flow. Those metrics don’t align with what many big-name investors are saying: That the entire AI market, encompassing hardware, software, and the infrastructure that connects them all, appears too overheated.
Palantir is one of the most exciting software names in the AI stack right now, largely due to that tension. Bulls see an engine that is growing in response to U.S. demand, but is still not well-known outside of the States.
And while bears think a spending boom may help someone, it could slow down when hyperscalers and businesses use up what they’ve already acquired.
The AI software firm crushed expectations, but macro risks loom over future quarters.Photo by Kevin Dietsch on Getty Images
Palantir reported record revenue of $1.18 billion in Q3 2025, thanks to a surge in commercial activity in the U.S., with government work also making a significant contribution.
Profitability increased alongside growth, indicating that operational leverage is starting to take effect as deployments rise.
The firm’s U.S. commercial revenue doubled in one year and grew faster than elsewhere.
With more than $5 million and $10 million contracts, contract value hit an all-time high.
The low to mid-40s for cash from operations and free cash flow margins persisted.
Management expects quarterly sales to go up again and GAAP operational profitability to stay high. The firm also ended the quarter with a lot of cash and no immediate worries about liquidity.
This gave it freedom to spend while allowing shareholders some flexibility via conservative stock-based pay and the ability to buy back shares in the future.
Skeptics argue the AI cycle is moving faster on supply than on durable end‑demand. They warn that rapid hardware improvements could compress the economics of model training and inference, rippling into software pricing and elongating return‑on‑investment timelines for customers.
According to Business Insider, Michael Burry is publicly opposing several AI leaders, including Palantir, framing the moment as a potential echo of prior tech manias in which great companies still experienced deep multiple compression.
If business pilots don’t become widespread, U.S. commercial growth may decline from triple-digit levels.
If customers renegotiate due to falling unit costs, software pricing and margins may suffer.
If export rules, procurement timing, or election year budgets change, government growth may become more unequal.
Palantir’s business model is straightforward: Convert record registrations into revenue, maintain high margins, and expand beyond its U.S. base. If PLTR continues to do so for a few more quarters, the “AI bubble” narrative will lose steam.
U.S. commercial growth has been in the triple digits, even with harder comparisons.
More and more of the residual deal value and overall contract value are being turned into recognized revenue.
GAAP operating margins are around the mid-30s, while cash margins are over 40%.
A few areas require special attention. Backlog quality is important, since some big contracts include options or termination-for-convenience clauses. If timeframes slip, many big deals may not be renewed.
Hyperscalers and well-funded competitors might make sales cycles longer or drive bundling. And because the stock price is based on continuing performance, any drop in growth or margins may swiftly affect the multiple.
Related: Google will support an AI system so powerful, NATO had to unplug it
Investors should also keep an eye on the power and data center limits that affect the entire business.
If infrastructure problems hinder rollouts or divert budgets away from application software and toward computation, it may harm demand in the short term.
U.S. commercial sales increase compared to previous quarters.
New big agreements worth $5 million and $10 million or more every three months.
Changing the rest of the agreement value into income and bills.
GAAP vs. adjusted operational margins and the path of stock-based pay.
Cash from operations and free cash flow margins in the low 40s or higher.
Palantir’s data illustrate that a software company can generate more revenue as demand increases.
The bearish thesis relies on a capital expenditure and policy cycle that cools down more quickly than predicted, forcing businesses to reassess their objectives and putting pressure on the economy across the board.
More Palantir
The next two quarters will be very important.
If Palantir turns its record backlog into sales, retains its GAAP margins in the 30s, and maintains its cash conversion in the 40s, it will have accomplished the most challenging feat in a hype cycle: transforming a riveting story into solid fundamentals.
If not, “Big Short” Michael Burry might be laughing his way to the bank yet again.
Related: Palantir CEO is cashing in. Should you be nervous?
This story was originally published by TheStreet on Nov 29, 2025, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.
