Second-quarter results and bookings significantly exceeded expectations, but high valuation and potential competition limit upside

Overview

Palantir's 2Q26 results broadly exceeded HSBC's forecasts and market consensus expectations, with revenue, operating margin, and EPS all delivering strong growth. The U.S. commercial business became the core engine for bookings and revenue growth, with total contract value clearly higher than recognized revenue, providing support for subsequent growth. Based on improvements in results, bookings, and guidance, HSBC raised its earnings forecasts and target price; however, considering the current extremely high valuation, the share price already reflecting most of the fundamental positives, and potential intensifying competition in the enterprise AI implementation market, it maintained its Hold rating.

Core views

First, Palantir's growth and profitability continued to exceed expectations, with 2Q26 non-GAAP operating margin reaching 61.7%, up about 15.5 percentage points year over year. Second, new contract growth mainly came from the U.S. commercial business, whose revenue increased 150% year over year to USD764m, while quarterly total contract value reached USD2,132m, up 153% year over year. Third, outside the U.S. commercial business, new orders, mainly from the U.S. government business, were broadly flat quarter over quarter, indicating a relatively concentrated growth structure. Fourth, Palantir still has a first-mover advantage in forward-deployed engineers, AIP, and Foundry implementation experience, but the adoption of agentic frameworks and model context protocol servers may lower entry barriers. Fifth, the 62.7x expected 2027 P/E ratio already fully prices in high growth, and potential competition-related news could trigger valuation multiple contraction.

Analysis framework

The report combines quarterly actual results with HSBC forecasts, market consensus expectations, and company guidance to conduct variance analysis, and evaluates bookings momentum by comparing total new contract value with revenue in the period. Valuation uses a PEG approach, combining the five-year future non-GAAP EPS compound growth rate, next-twelve-month EPS forecast, and peer valuation levels to derive the target price; it also conducts a qualitative competitive analysis of Palantir's enterprise AI implementation capabilities versus foundation model companies and software vendors.

Methodology notes

• Results AnalysisActuals Versus Expectations Comparison

  Compare quarterly actual results with institutional forecasts, market consensus expectations, and company guidance

  Revenue, non-GAAP operating profit, and EPS all exceeded expectations, forming the main basis for raising earnings forecasts.

• Forward Growth AnalysisBookings-to-Revenue Analysis

  Compare total new contract value with revenue recognized in the period

  Second-quarter total new contract value of USD3,373m was clearly higher than revenue of USD1,935m, indicating the backlog may support future revenue growth, although some contracts are multi-year contracts.

• Valuation AnalysisPEG Valuation Method

  Measure valuation by the multiple of P/E relative to EPS growth

  HSBC used a target PEG of 1.75x, a 2025 to 2030 non-GAAP EPS CAGR of 44.6%, and next-twelve-month EPS of USD2.07 to derive a target price of USD162.00.

• Relative ValuationPeer Comparison

  Compare the company's P/E ratio and earnings growth with the software industry

  Palantir's expected 2027 P/E ratio is 62.7x, far above the industry median of 20x; its 2025 to 2030 EPS CAGR is expected to be 44.6%, also significantly above the industry's low-teens percentage level.

• Competitive AnalysisEntry Barrier Analysis

  Assess the impact of technology diffusion and new entrants on differentiation capabilities

  The adoption of agentic frameworks and model context protocol servers may help OpenAI, Anthropic, and other software vendors connect to enterprise workflows more quickly, thereby weakening Palantir's first-mover advantage.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• PLTR.US

  U.S.-listed stock directly covered by the report

  Strengths

  Quarterly revenue, profit, and EPS significantly exceeded expectations; U.S. commercial business is growing rapidly; new contracts are significantly above revenue in the period; earnings forecasts and company guidance were raised; enterprise AI implementation has first-mover experience.

  Weaknesses

  Expected 2027 P/E ratio is far above the industry median; new orders outside the U.S. commercial business were broadly flat quarter over quarter; the share price already fully reflects most of the fundamental improvement.

  Comparison

  The 2025 to 2030 EPS CAGR is expected to be 44.6%, clearly above the industry's low-teens percentage level, but the expected 2027 P/E ratio of 62.7x is also significantly above the industry median of 20x.

  Risks

  Foundation model companies and software vendors may replicate the forward-deployed engineer model and partially replace Palantir; agentic frameworks and model context protocols lower entry barriers; competition-related product announcements could trigger valuation multiple contraction.

Key data

• 2Q26 revenueUSD1,935mUp 92.8% year over year, above HSBC's forecast of USD1,785m and market consensus of USD1,814m.
• 2Q26 non-GAAP operating profitUSD1,194mUp 157.2% year over year, above HSBC's forecast of USD1,092m and market consensus of USD1,082m.
• 2Q26 non-GAAP operating margin61.7%Up about 15.5 percentage points year over year, above HSBC's forecast of 61.1% and market consensus of 59.7%.
• 2Q26 non-GAAP EPSUSD0.41Up 159.8% year over year, above HSBC's forecast and market consensus of USD0.35.
• 2026 operating profit guidanceUSD4,893mRaised from USD4,446m, and also above the pre-results market consensus of USD4,566m.
• 2Q26 total new contract valueUSD3,373mUp 48.6% year over year, significantly above revenue in the period, with growth mainly driven by the U.S. commercial business.
• 2Q26 U.S. commercial business revenueUSD764mUp 150% year over year, further accelerating from 1Q26's 133% year-over-year growth rate.
• 2Q26 U.S. commercial business total contract valueUSD2,132mUp 153% year over year and higher than USD1,176m in 1Q26.
• 2026 to 2029 EPS forecast adjustmentRaised by about 10% to 19%Reflects better-than-expected second-quarter results, backlog, and company guidance.
• Expected 2027 P/E ratio62.7xThe industry median is about 20x.
• 2025 to 2030 EPS CAGR44.6%The previous forecast was 39.9%, while industry growth is in the low-teens percentage range.
• Target priceUSD162.00Previously USD151.00, implying about 1.2% upside versus the reference share price of USD160.00.

Impact & implications

In the short term, stronger-than-expected results, raised guidance, and robust U.S. commercial bookings should help continue lifting market earnings expectations and validate Palantir's execution capability in enterprise AI deployment. However, after the results release, the share price rose about 30% intraday, and the current valuation already prices in high growth expectations, leaving limited upside to the target price. Whether the medium-term valuation can be sustained depends on conversion of bookings into revenue, recovery of growth outside the U.S. commercial business, and whether Palantir can maintain its technology and implementation advantages as foundation model companies and traditional software vendors accelerate their entry into the enterprise workflow market.

Risks

• The macroeconomic or equity market environment may be weaker than expected.
• New product launches and commercialization outcomes may be weaker than expected.
• Well-funded foundation model companies such as OpenAI and Anthropic, as well as software vendors, may accelerate entry into the enterprise AI implementation market.
• The adoption of agentic frameworks and model context protocol servers may weaken Palantir's technology and integration barriers.
• Weak new order growth outside the U.S. commercial business could lead to excessive concentration of growth sources.
• The total contract value of multi-year contracts may fail to convert into recognized revenue as expected.
• High valuation is highly sensitive to competition news, slowing growth, or earnings misses.
• Use of closed-source models may bring risks such as leakage of enterprise intellectual property and uncertain returns on high token costs.

What to watch

• Whether U.S. commercial business revenue and total contract value can continue to maintain high growth.
• Whether new orders in the U.S. government business and other non-U.S. commercial businesses can resume quarter-over-quarter growth.
• The pace at which quarterly new contracts of USD3,373m convert into revenue and cash flow.
• Execution of 2026 non-GAAP operating profit guidance.
• Whether operating margin can remain around 60% after rapid expansion.
• Product releases by OpenAI, Anthropic, and other software vendors in enterprise workflows, forward-deployed engineers, and agentic applications.
• The competitive performance of AIP and Foundry versus foundation model-native enterprise tools.
• Whether valuation multiples can remain stable amid slowing growth and intensifying competition.