The Economist: Palantir will outlast AI exuberance. Valuation looks bonkers, its business isn’t.

Key topics:Palantir is highly valued, sparking investor skepticism and short bets.Revenue and profits surged, driven by AI software and big client deals.Government contracts and a unique FDE model ensure long-term growth..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..From The Economist, published under licence. The original article can be found on www.economist.com© 2025 The Economist Newspaper Limited. All rights reserved..The Economist.Despite what Alex Karp, the boss of Palantir, says, investors are hardly “batshit crazy” to bet against his company. The seller of whizzy analytics tools has a market value of nearly $450bn, equivalent to 137 times its sales over the past 12 months and 624 times its net profit. Nvidia, the most valuable company in the world and a fellow darling of the artificial-intelligence (AI) boom, is worth a comparatively meagre 28 times its sales and 54 times its net profit.Palantir, whose customers range from America’s Central Intelligence Agency to Wendy’s, a fast-food-chain, bears many of the hallmarks of an overinflated meme stock. It is beloved of retail investors, some of whom wear “Palantir to the moon” T-shirts. The firm, which loudly celebrates America’s military might, is also gleefully polarising. This week Mr Karp berated “the chattering class” for failing to grasp his firm’s potential. In a letter accompanying the firm’s latest quarterly results, published on November 3rd, he wrote that its doubters were in a “kind of deranged and self-destructive befuddlement”..Read more:.Despite 3Q sales surge tribe favourite Palantir price drops after record run-up.And yet the ranks of the befuddled seem to be swelling. The day after Palantir unveiled its results its shares plunged by 8% as it was revealed that Michael Burry, an investor famed for his bet against subprime mortgages during the global financial crisis, had taken out a big position against the company. If the hype surrounding AI fades, Palantir’s shares will have a lot further to fall.Even if that happens, however, Palantir’s business will survive. It is going from strength to strength. Revenue in the quarter from July to September was up by 63% year on year. Operating profit, adjusting for one-offs, was up by 248% (see chart). Morgan Stanley, an investment bank, commented after the results that it was “hard to find a better fundamental story in software”..Palantir’s growth partly reflects the surging popularity of AIP, its suite of AI software. It has helped the firm land a flurry of big contracts: Palantir closed 53 deals worth more than $10m in its most recent quarter, up from just 16 a year before. Even if customers’ enthusiasm for AI tools were too cool, many may find it difficult to disentangle their operations from Palantir’s software.Moreover, after years of losses, Palantir’s unique business model has now reached a profitable scale, which should create a momentum of its own. Founded in 2003, the company did not generate its first annual profit until 2023, at which point its model of helping its clients implement its software by embedding so-called “forward-deployed engineers” (FDEs) in their organisations began to pay off.Palantir is not your typical software-as-a-service company, but its operating margin—at 33% in the most recent quarter—is just as juicy. Business is booming, but headcount isn’t. As they customize Palantir’s products, FDEs use that knowledge to make the software more useful, meaning the work they do for one client is also valuable for others. The trickier the challenge, the bigger the potential reward for Palantir.The company’s model has proved so successful that it has spawned imitators across Silicon Valley. OpenAI, the maker of ChatGPT, and Anthropic, a rival, are among the many tech firms that have lately been hiring FDEs. Palantirians, however, tend to dismiss these imitators as copying the form but not the function of the role, arguing that they will inevitably be lured into creating out-of-the-box software that is easy to replicate across customers..Read more:.Palantir’s $73bn meltdown hands shorts rare $1.6bn payday.Another wind at Palantir’s back is the growth in government spending on defence and security. Since Donald Trump returned to the White House in January, the company has won numerous government contracts in America, including for defence and immigration enforcement. Palantir’s work for governments accounts for more than half its revenue. Although most of that is in America, the company is also expanding its business with other governments, such as Britain’s.The secrecy that surrounds Palantir’s government work adds to the difficulty of valuing the company. Its executives make matters worse by using obscure terms like “ontology” to explain what the firm does. But behind the self-aggrandising mystique is a business built to last.