Palantir CEO Alex Karp on Monday characterized his company’s performance using a simple rule that has historically boded well for tech stock returns. Karp said in a release that the company’s score with the “Rule of 40” was a 94%, which he said meant Palantir was “once again obliterating the metric.” The rule, which is commonly used to evaluate software-as-a-service companies’ growth sustainability, ranks businesses by evaluating revenue growth and margins. “If that number is somewhere in the 50s, 60s, 70s, that’s pretty baller,” Karp said on the defense technology company’s Monday earnings call, according to a FactSet transcript. “When it’s the single most impressive number I think any enterprise software company has ever seen, there is something anomalous going on.” The metric combines year-over-year revenue growth and margins tied to EBITDA or cash, according to Morgan Stanley. The goal is to get it above 40%. While venture capitalists “swear by” this rule, analyst Edward Stanley said, public market investors tend not to know what it is. Despite that, the firm found that the rule can help predict performance. In fact, Morgan Stanley found in mid 2024 that large-cap companies that pass the rule have seen a return of 14.5-times the original amount since 2010 — compared with a return of 3.9-times the initial investment for the S & P 500 in the same period. “It is a blunt tool,” said Stanley, who went on to describe it as “a high-level screen to homogenise and benchmark thousands of otherwise incomparable businesses.” ‘Impressive’ Palantir’s performance on the rule caught the attention of several stock analysts on Wall Street. Morgan Stanley’s Sanjit Singh said Palantir’s score helped show its “elite level performance in software.” Baird analyst William Power called the score “impressive.” Mizuho’s Gregg Moskowitz noted that Palantir has raised its score on the rule for the eighth straight quarter. Bank of America analyst Mariana Perez Mora said the company placing at 80% or higher over the last three years makes it “unique.” PLTR 1D mountain Palantir, 1-day Palantir shares rallied more than 6% in early trading on Tuesday after beating analyst expectations for the second quarter. Shares of the retail investor favorite have surged more than 110% in 2025.
