Michael Burry has questioned Palantir's valuation over its rising accounts receivable and thin deferred revenue, but the company holds $4.9 billion in unrecognized contracted revenue that his critique leaves out. Palantir's second-quarter numbers show revenue growing far faster than its workforce, a pattern that looks nothing like a traditional consulting business.
Burry's case against Palantir
Michael Burry has publicly questioned whether Palantir Technologies (PLTR) deserves to be valued like a high-margin software company. He has pointed to the firm's rising accounts receivable and relatively low deferred revenue, two factors that make its financial profile look more like a consulting company's. He has also flagged the risk that increasingly capable frontier AI models could weaken Palantir's role with commercial customers.
Palantir's accounts receivable rose from nearly $1 billion at the end of December 2025 to around $1.5 billion at the end of June 2026. One customer accounted for 27% of total receivables at the end of the second quarter. Deferred revenue was about $613 million, roughly 32% of the company's second-quarter revenue.
But the deferred revenue figure does not capture all of Palantir's contracted business. The company had $4.9 billion of remaining performance obligations at the end of June, representing noncancelable contracted revenue not yet recognized. Palantir also generated nearly $2.1 billion in operating cash flow in the first half of 2026, even as higher receivables used about $434 million of cash.
A margin profile unlike consulting
Palantir's economics look very different from those of a traditional consulting firm. In the second quarter, its revenue jumped 93% year over year, while employee count increased only about 5.7%. Its adjusted gross margin reached 86%, and its adjusted operating margin hit 62%.
Accenture, by comparison, posted an adjusted operating margin of 17% in its fiscal third quarter, which ended May 31. Commercial revenue told a similar story: Palantir's commercial revenue rose about $495 million year over year to nearly $945 million in the second quarter, with around 82% of that growth coming from existing customers.
Its contribution margin, meanwhile, rose 10 percentage points year over year to 74% in the quarter. Growing revenue this way generally requires proportional increases in employee and delivery costs at a traditional consulting firm, which sets Palantir apart from that model.
Execution and a pricey stock
Palantir's forward deployed engineers work directly with customers to build and deploy software against real-world problems. The company's ontology layer connects enterprise data, logic, actions, and security policies into a digital model of client operations, and its Artificial Intelligence Platform can work with models from multiple providers, including customer-hosted ones. Palantir is also expanding its partner ecosystem: PwC is broadening joint implementation and managed services with the company, and Fujitsu recently became a global forward deployed engineering partner.
Burry may be underestimating Palantir's business quality. Even so, the stock trades at roughly 75.5 times forward expected earnings, so it is priced for perfection. Any execution missteps could take a notable toll on the share price.
Source: Fool
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