Government & AI: Palantir's impressive success in the US and its international weakness

Between boom and stagnation – Palantir’s challenges in the global market

The American data analytics firm Palantir Technologies presents itself as one of the most successful technology companies today, at least in its home market. With revolutionary artificial intelligence and data analytics software, the company has firmly established itself in the American market. But while business is flourishing in the US, a closer look reveals a significant weakness: its international business is stagnating or even shrinking. This discrepancy between domestic success and global weakness raises questions about the long-term strategy and sustainability of its business model.

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The impressive figures from the USA

Palantir surpassed the iconic $1 billion quarterly revenue mark for the first time in the second quarter of 2025. This historic achievement underscores the company's dominant position in the American market. Total revenue increased by a remarkable 48 percent year-on-year to $1.003 billion, with profit climbing to $326.7 million.

The performance of the US business is particularly remarkable. Revenue from the United States exploded, growing by 68 percent to $733 million. This success is based on two strong pillars: the government business and the commercial sector. The US commercial business almost doubled, growing by 93 percent to $306 million. At the same time, the government business grew by a solid 53 percent to $426 million.

Government contracts remain a key component of Palantir's success. The company recently secured a framework contract with the U.S. Army with a potential value of up to $10 billion over the next ten years. This deal consolidates 75 individual contracts into a central software platform and underscores Palantir's strategic importance to the American defense infrastructure.

The Artificial Intelligence Platform as a growth engine

A key factor in Palantir's success is its Artificial Intelligence Platform (AIP), which the company has positioned as a revolutionary solution for integrating artificial intelligence into business processes. Unlike many competitors who use AI merely as a marketing term, Palantir has developed concrete applications that deliver measurable efficiency improvements.

The platform enables companies to run language models and other AI models on their private networks with full control. This is especially critical for security-conscious organizations and government agencies. The AIP combines real-time data from various sources into a semantic model of the business, minimizing the risk of model hallucinations and creating the trust needed for critical decisions.

International expansion as an Achilles heel

While Palantir is going from strength to strength in the US, the picture is completely different internationally. International commercial revenues fell 16 percent short of expectations in the first quarter of 2025. Even more dramatic: In the second quarter of 2025, international sales actually fell by 10 percent. This development is particularly worrying given that approximately 70 percent of Palantir's revenue comes from the US, representing a dangerous dependence on its domestic market.

The weakness in its international business is not just a short-term problem. Palantir has been struggling for some time to transfer its US success to other markets. In Europe, where the company aims to expand more rapidly, it is encountering significant structural hurdles and a hesitant adoption of AI technologies. While European sales grew, at 20 percent, they remained significantly behind the US pace.

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Data protection concerns as an obstacle to expansion in Europe

A key reason for Palantir's difficulties in Europe is its strict data protection regulations and its critical stance toward American technology companies. In Germany, the discussion surrounding the use of Palantir's software by police authorities has sparked a heated controversy. Data protection advocates warn against the massive data analysis and see it as a violation of fundamental rights.

The Society for Civil Rights has filed constitutional complaints against the use of Palantir software in both Bavaria and North Rhine-Westphalia. Critics complain that the software collects and analyzes data not only from suspects, but also from witnesses, victims, and completely innocent individuals. These concerns are compounded by the fact that Palantir is a US company and the software's source code is not publicly available, making democratic oversight difficult.

The political landscape in Germany is deeply divided on this issue. While the CDU and CSU support the use of the software, the SPD, Greens, and Left Party categorically oppose it. The dispute over Palantir in Baden-Württemberg, where the Ministry of the Interior signed a contract without sufficient legal basis, exemplifies the challenges the company faces in Europe.

Lack of diversification as a risk factor

The company's extreme dependence on the US market poses a significant business risk. While Palantir holds a dominant position in the US, it lacks a comparable presence in other key markets. While the company has announced expansion plans in Asia, for example, in Japan as a potential market for joint AI defense systems, concrete successes have yet to materialize.

Palantir estimates its total addressable market at $119 billion, of which $56 billion is in the commercial sector and $63 billion is in the government sector. This estimate already excludes countries where Palantir will not offer its services, such as China. But even in the available markets, the company is failing to realize its potential.

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Technological superiority versus cultural barriers

Palantir's technology is considered a leader in its field. The Gotham and Foundry platforms enable the linking, visualization, and analysis of large volumes of structured and unstructured data. These capabilities are invaluable, especially for security agencies, intelligence services, and large corporations. But technological superiority alone is apparently not enough to conquer international markets.

A key problem is Palantir's business model, which relies heavily on customization and tailored solutions. The company sends so-called forward-deployed engineers to its customers, who work like consultants and adapt the platform to their specific needs. This capital-intensive model is difficult to scale and requires a deep understanding of local conditions and regulations.

The role of Peter Thiel as a burden factor

A factor that should not be underestimated in Palantir's international difficulties is the person of Peter Thiel, the company's co-founder and major shareholder. Thiel is known for his libertarian and right-wing conservative views, as well as his closeness to Donald Trump. He is viewed critically in Europe, which negatively impacts the perception of Palantir.

CEO Alex Karp, who has led the company since its founding in 2003, cultivates a confrontational style and likes to position himself as a rebel against the establishment. This stance may work in the US, but it often meets with incomprehension or rejection in other cultures. Karp's statements about the superiority of Western values and his criticism of European companies as hopelessly backward do nothing to improve the company's image.

Growth forecasts and valuation issues

Despite the international weakness, Palantir remains optimistic. The company has raised its revenue forecast for full-year 2025 to between $4.14 billion and $4.15 billion. This would represent annual growth of nearly 50 percent. Analysts expect Palantir to achieve average annual revenue growth of 24 percent over the next three years.

However, the company's valuation remains controversial. With a market capitalization of over $400 billion, Palantir trades at approximately 100 times annual revenue. This extreme valuation reflects high expectations for future growth, but also carries significant risks. Should the international business continue to weaken, it could become difficult to justify this valuation.

Strategic partnerships as a glimmer of hope

To strengthen its international presence, Palantir is increasingly relying on strategic partnerships. The collaboration with IBM gave the company access to a sales force of more than 2,500 employees. Further partnerships with companies such as DataRobot, Microsoft, and Google Cloud are intended to help it tap into new market segments.

In particular, the partnership with Oracle to deploy the Palantir Foundry and Artificial Intelligence Platform on Oracle Cloud Infrastructure could open up new opportunities. These collaborations could help Palantir overcome the high barriers to entry in international markets and address local concerns about data sovereignty.

The challenge of scaling

A fundamental problem for Palantir is the scalability of its business model. While software-as-a-service companies typically benefit from high margins and low marginal costs, Palantir's approach is significantly more labor-intensive. The need to develop customized solutions for each customer limits growth potential and increases costs.

The company is working to make its platforms more modular to reduce its dependence on customization. The introduction of Virtual Tables, a connectivity solution that enables the use of existing data investments without data replication, is a step in this direction. However, the transition to a more standardized model is proving to be a lengthy process.

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Geopolitical tensions as an additional hurdle

Increasing geopolitical tensions between the US and other countries, especially China and Russia, as well as more complicated relations with traditional allies in Europe, further complicate Palantir's international expansion. As a company that works closely with US security agencies, Palantir is viewed with suspicion in many countries.

While Palantir's refusal to offer its services in certain countries like China may be right from an ethical and security perspective, it significantly limits its growth potential. At the same time, its close ties to US government agencies make the company a politically sensitive partner in other markets.

Pressure to innovate and competition

Although Palantir currently holds a leading position in AI-powered data analytics, competition is fierce. Established tech giants like Microsoft, Oracle, and SAP are investing heavily in similar technologies, and startups are entering the market with innovative solutions. Palantir's lead could quickly disappear if the company fails to continuously innovate.

High research and development costs are putting a strain on profitability. At the same time, Palantir must invest in new technologies to remain competitive. Balancing short-term profitability with long-term investments in innovation is becoming increasingly challenging, especially given high investor expectations.

Long-term prospects and risks

Palantir's future depends crucially on whether the company succeeds in significantly expanding its international presence. The company's extreme dependence on the US market is unsustainable in the long term, especially if the company wants to justify its high valuation. Management has recognized the challenge and is working on solutions, but progress is slow.

One possible solution could be to develop products specifically tailored to the needs and regulatory requirements of international markets. However, this would require significant investment and could further increase the complexity of the business. Alternatively, Palantir could gain a foothold more quickly through acquisitions of local companies, but this would also involve risks.

The fact that Palantir, despite its technological strength and impressive growth in the US, hasn't been able to take off internationally should give investors pause. It demonstrates that even the most advanced technology doesn't automatically lead to global success. Cultural, regulatory, and political factors play just as important a role as technical superiority. For Palantir, international expansion remains its greatest challenge and, at the same time, the most important prerequisite for long-term success.

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