Why is Wall Street ignoring the controversy surrounding Palantir? Expert says 'It's not a referendum on ethics'

Palantir delivered what it described as ‘otherworldly’ second-quarter results on Monday, pushing its shares up 12%, even as it continues to face backlash over its close ties to the US and Israel amid the West Asia conflict.

The company's revenue climbed 93% from about $1 billion a year ago. Palantir reported net income of $1.07 billion, or 41 cents per share, compared to about $329 million, or 13 cents per share, in the year-ago quarter. It's US government's revenue grew 90% year over year to $809 million.

CEO Alex Karp told CNBC, “To my knowledge, no businesses at our scale have even grown half this much”, and added, " The strong growth is going to go on for at least another 18 months.”

The company, widely known for selling its software to the US government and military, embraced an unapologetically pro-America identity since US President Donald Trump took office. Karp and other senior executives had often argued for the need for tech to re-engage with the defence industrial base and for AI's role in war — a stance that sparked fierce criticism.

But why ESG concerns matter less for Palantir

“Companies respond to ESG pressure for different reasons. Consumer brands often have to protect their reputation because their customers and shareholders expect them to uphold certain standards. But Palantir is fundamentally different,” Pramit Pal, India practice head, Eurasia Group, says when asked whether Palantir's strong earnings suggest reputational and ethical concerns are becoming less important to investors.

It is a defence and intelligence technology company, so working with militaries, including Israel's, is central to its business.

"A defence contractor that refuses to deploy its products in conflict zones would struggle to convince customers of their effectiveness," the political analyst says, adding, “In fact, working with Israel may actually add to its brand.”

Looking at Palantir solely through the prism of Gaza misses the broader nature of its business, he further asserts.

Adding to that, Vikram Shah, Founder & CEO of Vested Finance, says there's also a classification issue people overlook. Most ESG and ethical investment screens are designed to exclude weapons manufacturers. Palantir is a software company by sector classification, not aerospace and defence. “So, software sold to a government and then used in a conflict just doesn't get caught by that reasoning.”

Commercial AI, not geopolitics, powered Palantir's rally

Despite a 93% jump in government revenue, Shah says the narrative around its role in the West Asia conflict loses force “once you look at where that growth came from.”

Palantir's biggest growth came from businesses, not governments. US commercial revenue surged 149% to $764 million, while government revenue grew at a slower pace. International government business, in which Israel-related contracts would be recorded, accounted for less than 10% of quarterly revenue.

In other words, the biggest driver of Palantir's strong results was its commercial AI business, not defence-related contracts.

“The stock had already fallen nearly 30% this year due to valuation concerns. When a stock that's been de-rated that hard beats and raises guidance, it moves violently. That's what you saw. It's a positioning story, not a referendum on ethics,” Shah concludes