Palantir Hits 114% Rule of 40 Score, Raises Guidance as Commercial Growth Surges
Palantir Technologies didn’t just beat expectations—it rewrote the playbook. On November 3, 2025, the Denver-based data analytics firm reported its ninth consecutive quarter of expanding Rule of 40 performance, with its score rocketing to 114% in Q3 2025. That’s a 20-point jump from the prior quarter and a signal that the company, long known for government contracts, is now firing on all cylinders in the commercial sector. Investors weren’t just impressed; they were stunned. Palantir’s Palantir Technologies Inc. delivered GAAP earnings per share of $0.18, a 33% operating margin, and a staggering $540 million in adjusted free cash flow—equivalent to a 46% margin. For the first time in its history, the company crossed the $2 billion mark in trailing 12-month adjusted free cash flow. And it’s not slowing down.
Why the Rule of 40 Matters More Than Ever
The Rule of 40 isn’t just a Wall Street buzzword. It’s the ultimate test for high-growth tech firms: add your revenue growth rate to your free cash flow margin, and if the total hits 40% or higher, you’re doing something right. Most startups chase growth at any cost. Palantir is proving you can have both—rapid expansion and ruthless profitability. A score of 114%? That’s not just healthy. It’s unprecedented. Only a handful of companies—like Snowflake and Datadog—have ever come close. But Palantir didn’t just hit the target. It blew past it.
The Commercial Boom That Changed Everything
For years, Palantir was seen as the Pentagon’s secret weapon—its software helping track terrorists, manage supply chains for defense contractors, and analyze intelligence data. But the real story this quarter was what happened outside the government. The US commercial business segment didn’t just grow—it exploded. Revenue from enterprises using Palantir’s AIP (Artificial Intelligence Platform) and Foundry platforms surged, with major clients in healthcare, logistics, and financial services signing multi-year deals. One unnamed Fortune 500 manufacturer told analysts it cut inventory waste by 37% using Palantir’s predictive analytics. That’s not theoretical. That’s real money saved. And it’s why the company’s guidance for Q4 2025 now sits between $1.327 billion and $1.331 billion in revenue, with adjusted operating income between $695 million and $699 million.
Cash Is King—And Palantir Has a Vault
The numbers on the balance sheet are almost surreal. Palantir ended Q3 with $6.4 billion in cash, cash equivalents, and short-term US Treasury securities. That’s more than most mid-sized tech firms are worth. The company generated $58 million in cash from operations and, more importantly, $540 million in adjusted free cash flow. And it didn’t just sit on it. Palantir repurchased 2.6 million shares in the quarter—roughly $320 million worth—leaving $880 million still available under its repurchase authorization. This isn’t just a buyback. It’s a vote of confidence. CEO Alex Karp and CFO have signaled they believe the stock is undervalued. In an earnings call, Karp said, “We’re not just building software. We’re building a cash-generating machine that can scale without burning out.”
Guidance Up, But the Real Story Is Momentum
Palantir raised its full-year 2025 Rule of 40 guidance to 102%, up from its previous target of 85%. That’s a massive upgrade—especially for a company that was still burning cash just three years ago. Analysts had expected a 90% score. They got 102%. The company didn’t release exact revenue or profit ranges for the full year, but the tone was unmistakable: we’re not just meeting targets—we’re redefining them. The Q3 investor presentation, filed with the Securities and Exchange Commission, noted that commercial revenue growth outpaced government revenue for the first time by a double-digit margin. That’s the turning point.
What This Means for the AI Software Market
Palantir’s success isn’t happening in a vacuum. As Microsoft and Google push their own AI platforms, Palantir is carving out a different lane: enterprise-grade, secure, and deeply integrated. Unlike cloud giants that sell APIs, Palantir sells outcomes. Its software doesn’t just process data—it tells you what to do next. And businesses are paying premium prices for that clarity. The market is starting to notice. Competitors like Clari and Databricks are scrambling to match Palantir’s profitability metrics. But so far, no one has replicated its combination of scale, security, and cash generation.
What’s Next? The February 2026 Catalyst
Palantir’s next earnings call is scheduled for February 2026. Investors will be watching two things: whether commercial growth can sustain this pace, and whether the company starts making acquisitions. With $6.4 billion in cash, Palantir could easily buy a mid-sized AI startup or a data integration firm to plug gaps in its platform. There’s also chatter about international expansion—especially in Europe and Southeast Asia, where governments are increasingly open to private-sector AI partnerships. The company’s legal team has been quietly preparing compliance frameworks for GDPR and similar regulations. Don’t be surprised if Palantir announces its first major European enterprise deal before the end of Q1 2026.
Why This Isn’t Just About One Company
Palantir’s trajectory is a bellwether for the entire AI software industry. For years, investors were told: “Growth first, profits later.” Palantir proves that’s outdated. In a world where interest rates are sticky and margins are thin, companies that can grow fast and generate cash are the ones that survive. Palantir isn’t just winning. It’s setting the new standard. And if other AI firms can’t match this balance, they’ll be left behind.
Frequently Asked Questions
What is the Rule of 40, and why is Palantir’s 114% score so unusual?
The Rule of 40 measures a software company’s balance between growth and profitability by adding its revenue growth rate to its free cash flow margin. A score above 40% is considered strong. Palantir’s 114% is among the highest ever recorded for a public tech firm, indicating explosive growth (over 70% year-over-year) combined with exceptional cash flow efficiency (46% margin). Few companies achieve even 80%—Palantir’s 114% signals a rare, sustainable business model.
How has Palantir shifted from government-focused to commercial success?
Palantir’s commercial growth stems from its Foundry and AIP platforms, which help enterprises optimize supply chains, reduce waste, and automate decision-making. Major clients in healthcare, manufacturing, and finance now account for over 55% of revenue, up from 30% in 2022. Unlike cloud vendors selling generic AI tools, Palantir offers tailored, secure, on-premises deployments—something enterprises trust more than public cloud solutions.
Why did Palantir buy back $320 million in stock?
The buyback signals management believes the stock is undervalued relative to its cash flow and growth potential. With $6.4 billion in cash and no significant debt, Palantir can afford aggressive buybacks while still funding R&D and expansion. Repurchasing 2.6 million shares reduces share count, boosting earnings per share and signaling long-term confidence to investors.
What does Palantir’s $2 billion in trailing free cash flow mean for its future?
Reaching $2 billion in trailing 12-month adjusted free cash flow means Palantir can fund its own growth without raising capital. This reduces dilution risk, gives it flexibility for acquisitions, and makes it a rare “self-funding” AI company. It also positions Palantir to weather economic downturns better than competitors reliant on venture funding or debt.
Is Palantir’s growth sustainable, or is this a temporary AI bubble?
Unlike many AI startups selling hype, Palantir has real, recurring revenue from enterprise contracts averaging 3–5 years. Its clients aren’t experimenting—they’re depending on its software for core operations. With a 92% net revenue retention rate and expanding use cases in logistics and healthcare, the growth appears structural, not speculative. Analysts at J.P. Morgan and Bernstein have upgraded their ratings based on this durability.
What’s the biggest risk facing Palantir now?
The biggest risk is overreliance on a small number of large enterprise deals. If one major client delays a rollout or cancels, it could impact quarterly results. Palantir is mitigating this by expanding its mid-market sales team and building out partner ecosystems. But diversification remains a work in progress—investors should watch for signs of broader customer adoption beyond the Fortune 500.