The paradigm shift represented by advances in artificial intelligence (AI) has had a profound impact on the market since early last year. The speed at which major players in the AI space have climbed the ranks of the world’s most valuable companies has been breathtaking.
Apple has earned the number 1 position to Microsoftbut at the time of writing, both have a market cap of over $3.3 trillion. NvidiaHis company’s GPUs have clearly become the hardware of choice for processing AI workloads. The chipmaker quickly climbed the ranks, surpassing a $3 trillion valuation. After a brief stint at the top spot, it now sits in third place. Alphabet, AmazonAnd Meta platforms — each leading the AI revolution — have market caps of $2.2 trillion, $2 trillion, and $1.2 trillion, respectively.
While the market cap is currently only $58 billion, it is not an exaggeration to suggest that Palantir Technologies (NYSE: PLTR) makes a strong contender for future membership in the $1 trillion club. Investors need only see the speed at which generative AI is being adopted to understand the magnitude of the opportunity Palantir is addressing.
Decades of AI experience
Palantir only came to the attention of AI investors in the past year or so, but the company has a long and distinguished track record of developing AI tools. The company’s original focus was on helping the various agencies in the U.S. intelligence community connect their legacy databases, share and analyze information, with the goal of enabling them to more effectively uncover potential terrorist plots.
The company has since expanded its offerings, first to other government and law enforcement agencies and then to enterprises, providing AI-based data mining tools that help management make data-driven decisions. Thanks to Palantir’s extensive experience with AI, the company was quick to develop additional useful solutions as generative AI came of age early last year.
The company’s Artificial Intelligence Platform (AIP) is the result of those efforts. Palantir also developed a unique go-to-market approach that has proven wildly successful. To win new customers, the company offers “boot camps” to potential customers, where those companies quickly develop AI tools they can actually use to meet their specific business needs. These workshops allow potential customers to work side-by-side with Palantir engineers to solve real-world problems.
In its recent earnings call, management noted that 915 organizations had already participated in bootcamps, well ahead of the company’s original plan for 500 such workshops. Additionally, Palantir’s time to close deals is getting shorter because once prospects try AIP, they’re sold.
The resulting demand was robust. In the first quarter, Palantir’s revenue increased 21% year over year and 4% sequentially to $634 million. The showstopper metric in the quarter was U.S. commercial revenue, which increased 40% to $150 million (about 24% of total revenue) on strong demand for AIP.
Palantir also posted its sixth consecutive quarter of GAAP profitability, and many believe it’s only a matter of time before the company is selected for inclusion in the S&P 500. Some investors believe that could happen as early as this year. Moreover, the guidance gave investors even more reason to cheer, with management predicting full-year growth of at least 45% for the U.S. commercial segment.
The Path to $1 Trillion
Palantir’s long track record of AI expertise and work with both government and enterprise clients means that many customers seek the company out to implement AI solutions into their operations. One clear opportunity that may not yet be fully reflected in Palantir’s stock price is the potential for individual countries to develop sovereign AI solutions, a trend that has already begun. Combine that with the secular tailwinds of corporate AI adoption, and the enormous opportunity for the company becomes clear. That said, this expansion will take years, if not decades, to unfold.
According to the consensus among Wall Street analysts, Palantir should generate revenue of $2.7 billion in 2024, giving it a forward price-to-sales (P/S) ratio of around 21. Assuming the forward P/S ratio remains constant from here, Palantir would need to grow its annual revenue to around $46 billion to support a $1 trillion market cap. Revenue grew 21% year-over-year in the most recent quarter. At that rate, Palantir wouldn’t hit the $1 trillion mark until 2039.
There’s a big wild card at play here, though. Palantir’s U.S. commercial revenue, which includes generative AI, grew 70% year-over-year in Q4 2023 and 40% in Q1 2024, but customer numbers grew 55% and 69%, respectively. These numbers help illustrate the rapid, if uneven, adoption of AI.
As noted above, when management announced its first-quarter results, it raised its guidance for the segment, forecasting at least 45% growth for the year, and it is currently Palantir’s largest growth driver. Moreover, management has a long track record of issuing conservative guidance. If the company were to deliver average annual revenue growth closer to 40%, it could be worth $1 trillion in less than 10 years.
Predictions about the potential of generative AI are growing, but global management consulting firm McKinsey & Company estimates the market could be worth between $2.6 and $4.4 trillion annually.
If Palantir continues on its current path and continues to leverage the potential of AI, the company could soon reach a market cap of $1 trillion.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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