Palantir Q2 earnings recap: AI sovereignty

Introduction

Palantir grew revenue 93% year over year, its highest growth rate ever, raised full year guidance by the largest margin in company history, grew US commercial revenue 149% YoY, and posted a mind boggling rule of 40 score of 155%.

Everything about this quarter breathes excellence. However, it also comes with a price tag, which I'll spend a little more time on in the last section of this recap. Let's walk through the numbers, outlook, business highlights, and management commentary first.

1 - What Palantir does

Palantir builds software that helps large organizations, governments, and enterprises turn their own data into usable decisions and automated workflows, rather than just generating insights that sit in a dashboard.

Its core product, the Ontology, links a customer's raw data to real operational actions, and its newer AI Platform lets customers deploy and fine-tune AI models on top of that structure while keeping control of the underlying data and, increasingly, the model weights themselves.

Revenue splits between U.S. government work, built over two decades with defense and intelligence agencies, and a U.S. commercial business that has become the faster growing half of the company. The pitch to customers is control: your competitive data shouldn't end up training someone else's model. Palantir calls this 'AI sovereignty'.

2 - Key numbers

Revenue: $1.935 billion, up 93% year over year, up 19% quarter over quarter, the company's highest ever growth rate
U.S. revenue: $1.573 billion, up 115% year over year
U.S. commercial revenue: $764 million, up 149% year over year, up 28% quarter over quarter
U.S. government revenue: $809 million, up 90% year over year
Rule of 40 score: 155%, up from 145% last quarter, the 12th consecutive quarter of expansion
GAAP income from operations: $912 million, a 47% margin
Adjusted income from operations: $1.194 billion, a 62% margin
GAAP net income: $1.062 billion, a 55% margin
Adjusted free cash flow: $1.220 billion, a 63% margin
Net dollar retention: 157%, up 700 basis points from last quarter
Total remaining deal value: $13.1 billion, up 83% year over year
Cash, cash equivalents, and short term treasuries: $9.2 billion

I've been investing in software for the better part of this decade and I've never seen growth numbers like this in any public software business. Palantir really is a class of its own.