May 5 (Reuters) - Palantir Technologies raised its annual sales forecast on Monday, although its inline profit and a modest revenue beat disappointed investors who were expecting more from the AI-focused data and analytics firm, driving its shares down 8.4% in extended trading.

The stock has been one of the biggest gainers of a rally in AI-linked shares, rising more than 60% this year, as investors placed huge bets on its ability to benefit from widescale AI deployments and increased government spending on defense-related tech.

"The only thing that's higher than the results reported were expectations, and that's why the stock is down," said D.A. Davidson analyst Gil Luria. "Investors expected even more."

Palantir reported adjusted profit of 13 cents per share for the first quarter that was in line with analysts' average estimate, according to data from LSEG.

The company reported revenue of $883.9 million for the period, just about 2.4% above the estimates of $862.8 million.

"Investors were hoping for fireworks, not just results. Maybe a ... 10 times revenue beat," said Michael Ashley Schulman, chief investment officer of Running Point Capital.

For fiscal year 2025, the Denver, Colorado-based company now expects revenue in between $3.89 billion and $3.90 billion, up from its earlier forecast of sales between $3.74 billion and $3.76 billion. Analysts on average expect $3.75 billion in annual sales. It also forecast second-quarter revenue above estimates.

Co-founded by tech billionaire Peter Thiel, a significant portion of the company's revenue still comes from its services for governments, such as supplying software that visualizes the position of troops in a battle.

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

Big U.S. government contractors such as Accenture and IBM have flagged a hit from cost-cutting efforts by President Donald Trump's administration mostly through the Department of Government Efficiency.

During an interview with Reuters, Palantir's executives did not directly address questions on whether DOGE spending cuts, spearheaded by billionaire Elon Musk, would impact the company's contracts.

"Focus on efficiency is excellent for Palantir. We very much support a push by the U.S. government to push on efficiency across the government," finance chief David Glazer told Reuters.