Palantir (PLTR) Q3 2025: U.S. Commercial Revenue Soars 121%, Cementing AIP’s Enterprise AI Dominance
Palantir’s Q3 revealed a decisive inflection in U.S. commercial adoption, as AIP’s real-world impact drove 121% revenue growth and unprecedented customer expansion. The company’s Rule of 40 score of 114 and record $2.8B in total contract value bookings signal that Palantir is not just riding the AI wave, but shaping its trajectory, particularly in the U.S. enterprise and defense sectors. With a sharply raised outlook and visible operating leverage, investors now face a business outpacing even bullish expectations, with execution risks shifting from demand to scaling delivery and product leadership.
Summary
- U.S. Commercial Adoption Surges: Palantir’s AIP platform is driving rapid, enterprise-wide customer conversions.
- Operating Leverage Expands: Record Rule of 40 score and margin strength highlight scalable business model.
- Outlook Accelerates: Raised full-year guidance and visible Q4 momentum point to continued upside.
Performance Analysis
Palantir delivered its highest-ever revenue growth rate, with total revenue up 63% year-over-year and 18% sequentially, propelled by explosive U.S. commercial traction. U.S. operations now account for three-fourths of the business, and U.S. commercial revenue grew 121% year-over-year and 29% sequentially, reflecting both new customer wins and rapid account expansions. The company’s commercial segment, for the fourth consecutive quarter, outpaced government, growing 73% year-over-year and 22% sequentially. Notably, Palantir closed a record $2.8B in total contract value (TCV) bookings, up 151% year-over-year, with 204 deals exceeding $1M and 53 surpassing $10M.
Financial discipline remains a core differentiator: Adjusted operating margin hit a record 51%, and trailing 12-month adjusted free cash flow reached $2B for the first time. The Rule of 40 score, a software industry benchmark combining growth and margin, reached 114, a 20-point sequential jump and nearly triple the industry norm. Customer count grew 45% year-over-year to 911, while net dollar retention improved to 134%, demonstrating both expansion within existing accounts and high stickiness.
- U.S. Government Still a Growth Engine: Revenue grew 52% year-over-year and 14% sequentially, with ongoing momentum in mission-critical defense programs.
- International Commercial Lags: Growth in international commercial revenue was just 10% year-over-year, highlighting geographic concentration risk.
- Operating Expense Growth Controlled: Despite 63% revenue growth, expenses rose only 8% sequentially, underscoring high productivity and product leverage.
Palantir’s ability to scale revenue far ahead of cost growth, alongside a declining sales force, signals a business model where product and customer alignment, not brute force sales, drive expansion. The challenge now shifts to maintaining velocity as the U.S. opportunity matures and international segments remain subdued.
Executive Commentary
"By any normal or even reasonable standard, these are not normal results. These are not even strong results. These aren't extraordinary results. These are arguably the best results that any software company has ever delivered."
Alex Karp, Chief Executive Officer
"We closed our highest TCV quarter ever at $2.8 billion. Underlying this performance, we closed a staggering 204 deals worth $1 million or more, of which 91 deals were worth $5 million or more, and 53 deals were worth $10 million or more."
Ryan Taylor, Chief Revenue Officer & Chief Legal Officer
Strategic Positioning
1. AIP as the Enterprise AI Standard
Palantir’s AIP (Artificial Intelligence Platform) is emerging as the de facto standard for enterprise AI transformation, with C-suite sponsorship driving rapid, company-wide deployments. The platform’s ability to deliver real-world impact—such as eightfold ACV expansion within months for a medical device manufacturer—underscores its differentiation versus generic AI offerings. Ontology, Palantir’s contextual data layer, and AI FDE (Forward Deployed Engineer) agents are central to this moat, enabling rapid integration, workflow automation, and problem-solving at scale.
2. U.S. Market Domination and Expansion
The U.S. now represents 75% of revenue, with commercial customers accounting for 34% of total revenue, up sharply from prior periods. Palantir’s unique go-to-market, focused on value creation and deep customer alignment, is converting pilot projects into multi-year, enterprise-wide contracts. The company’s playbook—embedding deeply with customer teams, leveraging AI FDEs, and orchestrating broad reorgs—has proven highly effective in accelerating adoption and expansion.
3. Government Segment as a Platform for Innovation
Government remains a foundational pillar, with U.S. government revenue up 52% and international government up 66% year-over-year. Palantir’s software is increasingly embedded in mission-critical defense and intelligence operations, as seen in the U.S. Army’s directive to consolidate on Vantage, a platform built on Foundry and AIP. This not only provides revenue stability but also drives product innovation that feeds back into commercial offerings.
4. Operating Leverage and Productivity Gains
Palantir’s ability to achieve 63% revenue growth with only 10% headcount expansion is a testament to the productivity unlocked by its own AI tools. The company’s internal use of AI FDEs and product-driven approach has enabled it to scale with fewer salespeople, focusing resources on product and technical talent rather than traditional sales infrastructure.
5. International and Segment Diversification Remain Challenges
While U.S. momentum is exceptional, international commercial growth remains muted, and Europe is described as “stagnant.” This geographic concentration, while currently a strength, poses future risk if U.S. demand normalizes or competitive dynamics shift. Management acknowledges the need to accelerate international adoption and diversify the customer base.
Key Considerations
Palantir’s Q3 marks a turning point where product-market fit and operational discipline converge, but also raises new questions about sustainability and next-phase growth. The company’s narrative is shifting from proving AI value to scaling delivery and deepening its competitive moat.
Key Considerations:
- Enterprise AI as a C-Suite Imperative: Customers are now approaching Palantir with mandates for organization-wide AI transformation, not just point solutions.
- Deal Size and Duration Expanding: The number of large, multi-year contracts is growing, driving visibility and reducing churn risk.
- Operating Efficiency as a Differentiator: Palantir’s ability to grow revenue with modest expense increases and a shrinking sales force highlights a unique business model advantage.
- International Growth Remains Elusive: Management’s focus remains on the U.S., but unlocking international growth is increasingly critical for long-term upside.
- Product Innovation Cycle Accelerates: AI Hivemind and Edge Ontology are extending the platform’s reach and deepening customer lock-in.
Risks
Palantir’s execution risk is migrating from demand generation to delivery and scaling, as rapid customer expansion tests onboarding and support capacity. Geographic concentration heightens exposure to U.S. macro and policy shifts, while international stagnation limits diversification. Competitive threats from hyperscalers and emerging AI platforms remain, especially as the broader industry evolves. Management’s aggressive tone and raised guidance set a high bar for future quarters, increasing the risk of disappointment if growth or margin expansion slows.
Forward Outlook
For Q4 2025, Palantir guided to:
- Revenue of $1.327 to $1.331 billion
- Adjusted income from operations of $695 to $699 million
For full-year 2025, management raised guidance:
- Revenue of $4.396 to $4.400 billion
- U.S. commercial revenue in excess of $1.433 billion (at least 104% growth)
- Adjusted income from operations of $2.151 to $2.155 billion
- Adjusted free cash flow of $1.9 to $2.1 billion
Management emphasized continued demand acceleration, product differentiation, and visible pipeline strength:
- U.S. commercial TCV growth and customer expansions as the primary growth driver
- Ongoing investments in AIP and technical talent to sustain product leadership
Takeaways
Palantir’s Q3 results signal a step-change in enterprise AI adoption, with the company’s AIP platform now entrenched as a mission-critical tool for both commercial and government customers. Operating leverage is unlocking margin upside, even as headcount and sales investment remain tightly controlled.
- AIP Platform Drives Step-Change in Adoption: Palantir’s ability to convert pilots into enterprise-wide contracts, with rapid ACV expansion, is creating a virtuous cycle of demand and account growth.
- Margin and Cash Flow Strength Provide Downside Protection: Record profitability and cash generation support continued investment in product and talent, while enabling capital returns.
- International Growth and Delivery Execution Are Next Watchpoints: Sustaining momentum will require unlocking non-U.S. markets and scaling onboarding and support for a rapidly growing customer base.
Conclusion
Palantir’s Q3 2025 results mark a new era for the company, with AIP’s transformative impact driving both top- and bottom-line outperformance. As the business shifts from validation to scale, investors should monitor execution risks around delivery and international expansion, but the core thesis of product-driven, high-leverage growth is now firmly established.
Industry Read-Through
Palantir’s surge in U.S. commercial AI adoption is a bellwether for the broader enterprise software and AI sectors. The rapid shift from pilot projects to full-scale deployments, driven by C-suite mandates, signals that the enterprise AI market is entering a phase of mass adoption for vendors able to deliver real workflow integration and value. The company’s operating leverage and declining reliance on traditional sales highlight the growing importance of product-led growth models. For defense and government technology providers, Palantir’s deepening integration into mission-critical programs sets a new bar for software-driven innovation and lock-in. International laggards and pure-play AI startups face increasing pressure to differentiate or risk irrelevance as platform consolidation accelerates.