Palantir warns of Q3 expense spike amid 42.8% operating margin

Palantir Technologies (PLTR) management told investors on the fiscal Q2 2026 earnings call to expect a significant rise in expenses in the upcoming third quarter. The company attributes this increase to the seasonal timing of new hire starts and spending on product and marketing. This warning comes as Palantir’s operating margin has expanded to 42.8% over the past twelve months, up from 16.6% a year earlier.

The sharp improvement in profitability stems from revenue growing faster than costs. Palantir’s revenue over the past twelve months reached $6.2 billion, a substantial increase from $3.4 billion in the prior year. This growth is driven largely by the U.S. business, which now accounts for over 81% of total revenue. On the recent call, management stated that U.S. revenue grew 115% year-over-year, citing immense demand from companies for sovereign AI, which they define as AI systems that customers fully control.

At its current valuation, the stock trades at 151.2 times earnings, compared to 21.4 for the S&P 500. This premium suggests that the market price assumes the high operating margin will remain stable. However, specific cost pressures are already emerging. In fiscal Q2 2026, Palantir took on cloud hosting for a government customer, a change management said led to a higher cost of revenue for that quarter.

Despite the margin expansion, sales growth is still accelerating. Revenue grew 92.8% year-over-year in the latest quarter, up from 62.8% three quarters before, with growth rising in every interim period. Management has also raised its full-year 2026 revenue forecast to between $8.15 billion and $8.158 billion, describing it as the company’s largest-ever raise.

For the upcoming third quarter of 2026, Palantir forecasts adjusted operating profit of $1.292 billion to $1.296 billion on revenue of approximately $2.16 billion. This represents an adjusted operating margin of about 60%, down from 62% in the second quarter, reflecting management’s expectation that expenses will rise. It is important to note that this adjusted figure excludes certain costs and should not be directly compared to the reported operating margin of 42.8%. In the 2022 inflation shock, Palantir stock fell 64.0% from peak to trough, whereas the S&P 500 declined by 24.0%, highlighting the stock’s historical volatility relative to the broader market.