Palantir stock is rising as revenue from the Defense Department's spending powers increases

Shares of Palantir (PLTR) rose more than 20% early Tuesday after third-quarter earnings beat expectations, driven by better-than-expected U.S. government spending on its AI technology.

Global government spending on Palantir products, primarily in the U.S., rose 40% year over year to $408 million in the third quarter and accounted for 56% of the company's total revenue in the period. This was above the $379 million expected for the segment, according to Bloomberg consensus estimates.

Palantir, which makes a range of data mining and analysis software including its Artificial Intelligence Platform (AIP), most recently won a $100 million US military contract in September for its AI tools that identify targets for airstrikes.

“The AI ​​revolution is now underway,” Ryan Taylor, Palantir’s chief revenue and legal officer, said in a call with investors late Monday. “The gap between the AI ​​haves and the AI ​​disadvantages is widening and the whole world is watching.”

Taylor said Palantir's U.S. government business “delivered its strongest sequential growth in 15 quarters, driven largely by 21% quarter-over-quarter growth in our DoD (Department of Defense) business.”

Meanwhile, Palantir's commercial revenue fell short of expectations, coming in at $317 million versus expected $317 million. Its corporate customers include oil and gas giant BP (BP), CBS Broadcasting and General Mills (GIS). The company said sales were impacted by “a decline in sales at a state-backed company in the Middle East.” Palantir did not respond to a request from Yahoo Finance for further details.

Overall, the company reported adjusted earnings per share of $0.10 for the quarter, a penny above expectations, on revenue of $725.5 million, beating Wall Street analysts' expectations of 703.7 million US dollars.

Palantir shares have risen more than 190% since the start of the year, driven by a broader boom in artificial intelligence and the U.S. government's growing interest in AI warfare technologies. The stock was added to the S&P 500 in September.

“Palantir is among a handful of infrastructure software companies that have begun meaningfully monetizing generative AI,” Deutsche Bank (DB) analyst Brad Zelnick wrote in a note to investors on Monday.

Although Wall Street analysts recognized Palantir's advantages, they were overall skeptical of the stock's rise. On average, they expect the stock to fall to $32.81 next year, according to Bloomberg data, with about half of analysts tracked by Bloomberg recommending selling the stock. Zelnick himself has a sell rating on the stock and expects the stock to fall to $26. As of Tuesday morning, shares were around $50.

The story continues

Rishi Jaluria, an analyst at RBC Capital Markets, said in a note on Tuesday morning: “We continue to believe the risk-reward trade-off is unfavorable as the shares trade at a premium multiple,” adding: “We remain cautious about the sustainability of U.S. economic growth.”

Palantir's outspoken CEO and co-founder Alex Karp literally gave the middle finger to doubters in comments during the company's earnings release.

“(Most) people involved in tech innovation now view Palantir as their ally,” Karp told analysts and investors.

“And instead of going into every meeting and saying, 'Oh yeah, Palantir is great, but their fearless leader is crazy about bats and he could go to his commune in New Hampshire,' whatever they said, now it is like: Yes, the products are the best and we have great products.”

Palantir, co-founded by conservative tech mogul Peter Thiel, has at times faced backlash over its partnerships with government agencies, including Immigration and Customs Enforcement (ICE) and the Israel Defense Force (IDF).

Karp's outspoken, often controversial statements about the Middle East have drawn criticism, and his role as a supplier of AI warfare technology to the IDF has led some employees to leave the company.

Karp said on Monday's conference call that the company wants to “bring violence and death to our (the United States) enemies while improving targeting and overall security issues for our allies and Americans.”

Laura Bratton is a reporter for Yahoo Finance. Follow her on X @LauraBratton5.

Click here for the latest stock market news and in-depth analysis, including stock-moving events

Read the latest financial and business news from Yahoo Finance