The S&P 500 has slid about 5% since January as new tariffs and persistent inflation raised costs, rattled supply chains and kept interest rates high. 

Despite this, Palantir’s (PLTR) shares are up roughly 45% year-to-date after it delivered nearly 40% revenue growth, fatter margins and raised guidance in Q1. 

Still, the stock fell over 10% post-earnings because it’s already priced for perfection, leaving little room for any slip. 

With the market demanding flawless execution, even strong results can trigger sharp swings if they fall short of sky-high expectations.

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Since the start of the year, the S&P 500 has struggled under a cloud of uncertainty.

Early gains faded as fresh rounds of tariffs on key trading partners drove costs higher and rattled corporate supply chains.

Investors worried that higher import prices would squeeze margins and that retaliatory measures abroad could slow global growth.

At the same time, inflation has held above the Fed’s 2% target, keeping interest rates elevated and putting pressure on valuations across the board.

Business and consumer confidence dipped, and the index sits roughly 5% below its January level.

Despite everything going on with the economy, Palantir (PLTR) managed to stand out.

Its stock has climbed about 45% year-to-date, even after a pullback following its latest earnings report.

Palantir’s latest quarter delivered everything the market wanted to hear. Revenue grew by nearly 40% year-over-year, margins expanded and the company lifted its full-year guidance.

On the surface, that should have sent the stock higher. Instead, shares slid more than 10% after the report.

That reaction speaks to just how high expectations have climbed and how little room there is for any slip, even when the underlying business is firing on all cylinders.

Palantir’s platform is winning new customers and convincing existing ones to spend more. In Q1, total revenue hit $880 million, led by a 71% jump in U.S. commercial sales and a 45% gain in government contracts.

Commercial users alone are now running at a $1 billion annual pace in the U.S., evidence that companies outside of defense and intelligence are finding real value in Palantir’s data tools.

That’s what drove management to nudge full-year revenue guidance up to roughly $3.9 billion, a 36% increase over last year.

As-reported profitability is improving alongside growth. Adjusted gross margins remain in the low-80s, while free cash flow margins topped 40% for the quarter.

Palantir isn’t just piling on low-margin clients; it’s selling software that sticks. And with operating leverage kicking in, every additional dollar of revenue now contributes more to the bottom line.

Taken together, those numbers would be satisfying for most software companies. They certainly met and beat the street’s projections.

What rattled investors was the valuation.

At current prices, Palantir trades at more than 440x forward Uniform P/E, an extraordinary premium even in today’s AI market.

For context, peers like Microsoft (MSFT) and Salesforce (CRM) trade around 25x Uniform earnings.

Palantir’s Uniform return on assets ”ROA” was around 20% in 2024, not that impressive for a fast-growing software business and hardly supports such a steep multiple.