Arsheeya bajwa

(Reuters) - Palantir Technologies improved its annual sales forecast on Monday, although its inline profits and modest revenue disappointed disappointed investors, expecting more expectations from AI-focused data and analytics companies, increasing their 8% stake in the expansion deal.

The stock has been one of the biggest earners in the AI-connected stock rally, up more than 60% this year as investors add huge bets to it benefit from a wide range of AI deployments and increase government spending on defense-related technologies.

"The only thing that is higher than the reported results is the reason for expectation, which is why the stock is down," said Da Davidson analyst Gil Luria. "Investors expect more."

Palantir reported adjusted earnings per share for the first quarter at 13 cents per share, consistent with analysts' average estimates, according to LSEG.

The company reported revenue of $883.9 million for the period, only about 2.4% higher than the estimated $862.8 million.

"Investors want fireworks to be more than 10 times more revenue," said Michael Ashley Schulman, chief investment officer at Running Point Capital.

In fiscal 2025, the Denver, Colorado-based company now expects revenue between $3.89 billion and $39 billion, with forecasts for sales between $3.74 billion and $3.76 billion. Analysts expect an average annual sales of $3.75 billion. It also predicts second-quarter revenue is higher than estimates.

Co-founded by tech billionaire Peter Thiel, a large portion of the company's revenue still comes from its services to government, such as software that provides visualization of the position of troops in combat.

The U.S. government accounted for more than 42% of revenue in the three months ended March 31.

Large U.S. government contractors such as Accenture and IBM have mostly hit hard through cost-cutting efforts by the Donald Trump administration in the government efficiency department.

In an interview with Reuters, Palantier's executives did not directly address whether the cuts in the spending cuts in the run-up to billionaire Elon Musk would affect the company's contract.

"The focus on efficiency is very good for Palantir. We are very supportive of the U.S. government pushing the government to drive efficiency," said Reuters.

(Reported by Arsheeya Bajwa in Bangalore; Editor of Anil d'Ilva)