Palantir Technologies Inc. (PLTR) beat third-quarter earnings estimates and raised its full-year outlook, yet shares fell about 6% in Tuesday's premarket trading. The reaction highlights growing investor concerns about its premium valuation and slowing contract growth, even as demand for AI and defense technology remains strong.

For ETF investors, however, Palantir's next growth opportunity could lie beyond conventional AI adoption, with sovereign AI and defense spending emerging as potential catalysts.

"Like all AI names, PLTR came into earnings priced to perfection, hence the pullback off the beat. Elevated expectations seem to be the main factor holding back this recent high flyer," Ryan Lee, senior vice president of product and strategy at Direxion, told MarketDash.

Palantir reported third-quarter revenue of $2.31 billion, beating the $2.18 billion analyst estimate. Adjusted earnings of 44 cents per share also topped expectations of 41 cents. The company raised its full-year 2026 revenue forecast to approximately $8.53 billion.

However, total contract value growth slowed to 6% from 49% in the previous quarter, while U.S. commercial contract value growth cooled to 11% from 153%.

Sovereign AI Could Drive Palantir's Next Growth Leg

Despite the market reaction, Lee sees reasons for optimism in Palantir's operating performance.

"For bulls, operating leverage and margin expansion are major highlights today. In a time where the market is punishing shrinking FCF, it was great to see FCF generation accelerating," he said.

The longer-term opportunity could come from governments seeking greater control over their AI infrastructure, data and national security capabilities.

"There are major sovereign AI tailwinds that PLTR is best positioned to capitalize on, and [CEO Alex] Karp said as much in early commentary," Lee said. "How they expand outside the U.S. could be a major catalyst for the next leg higher in this trade."

However, international expansion presents challenges.

"Government contracts remain lumpy, and while the U.S. government is a great client, there will always be unpredictability as political tides shift," Lee cautioned.

He also believes Palantir's political associations could complicate its European expansion.

"While the U.S. business is strong, it will be hard to see meaningful expansion abroad without major shifts in European politics," he added.

Which ETFs Offer Exposure to Palantir?

The sovereign AI and defense opportunity could put ETFs holding Palantir on investors' radar.

The Global X Defense Tech ETF (SHLD) offers concentrated exposure, with Palantir accounting for approximately 11.82% of its portfolio. Its other major holdings include Lockheed Martin Corp. (LMT), RTX Corp. (RTX) and General Dynamics Corp. (GD).

The Global X Artificial Intelligence & Technology ETF (AIQ) offers broader exposure to AI adoption. Palantir represented approximately 4.43% of its portfolio, alongside companies such as Microsoft Corp. (MSFT), Tesla Inc. (TSLA) and Oracle Corp. (ORCL).

The distinction is important. SHLD combines Palantir exposure with traditional defense and military technology companies, while AIQ provides broader exposure to the AI ecosystem.

Palantir's earnings reaction underscores the risks of investing in an AI stock priced for near-perfect execution. But if sovereign AI spending accelerates, its government and defense relationships could remain an important growth driver.

For ETF investors, the next phase of the AI trade may increasingly depend on who builds the technology governments consider strategically essential.