Palantir Just Posted Blowout Earnings, So Why Did the Stock Tank?

On the surface, Palantir Technologies (NYSE: PLTR) is firing on all cylinders. Revenue is accelerating. Margins are expanding. The company just posted its sixth consecutive quarter of profitability, a first in its history. And yet, within hours of reporting one of its strongest earnings beats to date, the stock cratered by double digits.

So what gives?

Key Points

• Despite stellar Q1 results, Palantir’s sky-high valuation left no room for upside surprise.

• Investors now want real earnings from AI, not just growth stories and are rotating into more reasonably priced names.

• Palantir is strong operationally, but its stock needs time to grow into its extreme valuation.

The Paradox of a Beat-and-Drop

Palantir’s Q1 2025 results were objectively impressive. Revenue clocked in at over $630 million, up 32% year-over-year and well ahead of analyst estimates. Operating income came in at $143 million, a 62% jump from the prior year. Free cash flow more than doubled to $148 million, and the company raised full-year guidance across every major metric.

The highlight: Commercial revenue in the U.S. surged 69% year-over-year, the fastest growth rate in the company’s history. Its Artificial Intelligence Platform, launched just under two years ago, is becoming the core growth engine, especially in sectors like energy, healthcare, and logistics.

Yet the stock nosedived.

A Classic Case of Expectations Colliding With Valuation Gravity

The simple explanation? Expectations were too high and so was the stock.

Going into earnings, Palantir was trading at a price-to-sales ratio north of 90, a level that placed it not just above peer software firms, but well beyond even some of the most hyped AI plays. For context, Nvidia, arguably the poster child of the AI revolution, trades around 37x sales.

As of this week, Palantir’s market cap briefly touched over a quarter of a trillion dollars, placing it ahead of major blue chip tech titans, despite generating a relatively paltry $3 billion in trailing 12-month revenue.

This isn’t to say Palantir doesn’t have a long runway. But when a stock is priced as if it’s already won the decade, even a perfect earnings report can’t push it higher — it can only expose how much perfection was already baked in.

Is the Market Starting to Fear AI Mania?

There may be something deeper going on here, a subtle shift in how investors are approaching the AI trade.

In 2023 and 2024, Wall Street rewarded any company with a compelling AI narrative. But in 2025, the bar is rising. Investors are now scrutinizing how AI contributes to sustainable earnings power, not just top line growth or buzz.

As of yesterday, the majority of the top-performing AI-related stocks in 2024 have underperformed the S&P 500 in 2025. In contrast, more mundane infrastructure plays, like Broadcom and Supermicro, are quietly leading the pack.

Palantir may still be one of the few names in AI with real enterprise traction. But when its P/S multiple is nearly 4x higher than Microsoft — which owns the most valuable AI product on the planet in OpenAI’s ChatGPT — the market starts asking uncomfortable questions.

Great Company, Tough Setup

Palantir isn’t broken. Far from it. But its stock was priced like a sure-thing AI monopoly. And no company, no matter how promising, can live up to that standard quarter after quarter.

Investors chasing momentum in Palantir might want to revisit the basics of a great business does not always make a great stock, at least not at any price.

Palantir still has room to grow into its valuation. But for now, it may need time to digest the exuberance that sent its stock up almost 10x from its lows in early 2023. Sometimes, even winners have to take a breather.