Update, later on August 3, 2026: Palantir reported Q2 after this was published. Revenue grew 92.8% and free-cash-flow margin reached 62.1%, taking the score to 155 — both halves rose again, exactly as described below. The current figures are in Palantir's Q2; the 139 discussed here is the quarter ended March 2026.
The Rule of 40 is a trade-off rule. It says a software business should be able to add revenue growth to free-cash-flow margin and clear 40, and the reason it works as a screen is that the two halves normally pull against each other. Spend to grow and margin falls. Harvest margin and growth falls. A company sitting at 40 is usually 35 of one and 5 of the other, and the interesting question is always which.
Palantir has spent the last five quarters declining to make that choice. In the quarter ended March 2026 it grew revenue 84.7% year over year and converted 54.6% of that revenue into free cash flow. Those sum to 139.3 — three and a half times the threshold the rule was built around, with neither half carrying the other.
The trade Palantir did not make
Here is the same business four years ago, and the path since. Every figure is quarterly, from the filings.
| Quarter | Revenue | Growth | FCF margin | Rule of 40 |
|---|---|---|---|---|
| 2022 Q3 | $478M | 21.9% | 6.8% | 28.8 |
| 2022 Q4 | $509M | 17.6% | 14.5% | 32.1 |
| 2023 Q4 | $608M | 19.4% | 48.7% | 68.2 |
| 2024 Q4 | $828M | 36.2% | 55.2% | 91.4 |
| 2025 Q2 | $1,004M | 48.1% | 52.9% | 101.0 |
| 2025 Q3 | $1,181M | 62.7% | 42.4% | 105.1 |
| 2025 Q4 | $1,407M | 69.9% | 54.3% | 124.2 |
| 2026 Q1 | $1,633M | 84.7% | 54.6% | 139.3 |
In late 2022 Palantir was a Rule of 40 failure — 28.8, below the line, and below it for the ordinary reason: it was growing at 22% and converting almost nothing. The recovery from there did not come from one half. Growth roughly quadrupled, from 17.6% to 84.7%. Margin also roughly quadrupled, from 14.5% to 54.6%. That is the unusual part. A company that fixes its cash conversion normally does it by slowing down.
The acceleration is the second unusual part. Revenue growth of 84.7% is not a small-base artifact — it is being computed against a quarter that itself did $884M. Palantir is growing faster at a $6.5 billion annual run rate than it was at $2 billion. Trailing twelve months now stands at $5.23 billion of revenue and $2.69 billion of free cash flow.
Gross margin has gone the same direction, expanding in six of the last seven quarters to 86.78% — which is what makes the cash half sustainable rather than a working-capital swing. There is no margin being borrowed from somewhere to fund the growth.
What a 139 is and is not
Across the 59 companies on this site with enough history to score, the median Rule of 40 is 30.8 — below the threshold — and 26 clear 40. Palantir's 139.3 is fourth. The three above it are worth naming, because they show what the number can hide:
| Score | Growth | FCF margin | What is driving it | |
|---|---|---|---|---|
| MU | 219.4 | 196.3% | 23.1% | A memory-cycle upswing off a collapsed base |
| BAC | 145.2 | 7.2% | 138.0% | A bank; the margin half is not comparable to software |
| NVDA | 144.8 | 85.2% | 59.5% | Operating, and the closest true peer |
| PLTR | 139.3 | 84.7% | 54.6% | Operating, both halves |
Micron's 219 is a cycle turning, not a business compounding — the base it is measured against was a trough, and that reverses. Bank of America's 145 is an artifact of applying a cash-flow margin to a balance-sheet business, where operating cash flow has little to do with the operating result. Only Nvidia and Palantir are posting scores in that range from an operating business growing under its own power, and the two are remarkably close: Nvidia carries slightly more of both halves.
That comparison is the honest use of the number. A Rule of 40 score is a compression of two facts into one, and compressions lose information — the score alone cannot tell you that Micron's growth is a rebound and Palantir's is not. It is a screen, not a verdict.
What the score does not answer
The Rule of 40 says nothing about price. Palantir trades around $119.50, roughly 55 times trailing revenue, and a score of 139 is not an argument that the multiple is right — the score would be 139 at half the price. The two are separate questions and the rule only addresses one.
It also says nothing about durability. Both halves of a 139 are unusually far from equilibrium, and the arithmetic of the growth half gets harder from here: 84.7% growth on a $1,633M quarter means finding roughly $1.4 billion of incremental quarterly revenue to repeat it a year out. The margin half has more obvious headroom, at 54.6% against gross margins near 87%.
What to watch
- Whether the two halves stay uncoupled. The signal in this history is not the level, it is that growth and margin rose together. The quarter where one is bought with the other is the quarter the story changes.
- Gross margin's next print. Six expansions in seven quarters is what makes 54.6% cash conversion credible. A reversal there would show up in the cash half two quarters later.
- The growth base. Deceleration from 84.7% is near-certain and is not itself news. Whether the score holds above 100 while it happens is.
Palantir figures are quarterly, from the company's SEC filings: revenue and gross margin from the income statement, free cash flow computed as operating cash flow minus purchases of property and equipment — the same definition applied to every company on this site, described in our Rule of 40 explainer. Peer scores are each company's most recent scoreable quarter and are not all the same quarter; the median and the count of 59 cover every tracked company carrying both a revenue and a free-cash-flow series. Price of $119.50 as of August 3, 2026.
This piece replaces an earlier one at this URL, published August 1, 2026, which reported that our Rule of 40 for Palantir was computed from Q4 2024 because our free-cash-flow series stopped there. That gap has since been closed: the series now runs through 2026 Q1 on the standard definition, and the score on Palantir's page reads 139 as of that quarter.