When it comes to growth potential, Palantir (NYSE:PLTR) has received increasing attention in recent months. The generative AI capabilities of the Artificial Intelligence Platform, better known as AIP, delivered enormous productivity gains for customers.
Part of that benefit should indeed accrue to shareholders. The question is whether that gain is enough to deliver a hundredfold gain that could help smaller investors, an amount that could turn a $10,000 investment into $1 million or more.
Palantir’s growth potential
Palantir has done the smart thing by marketing AIP through its so-called “boot camps.” These forums allow potential customers to use the platform to solve problems, and given the productivity gains, some customers will see huge returns.
One customer claimed to be ten times more efficient with the AIP platform, while using a third of the resources. Palantir also says it has signed a seven-figure deal with an unnamed insurance brokerage just days after demonstrating a use case for automated policy review.
Such effects inspire other potential customers to join the bootcamps and likely sign up as customers if they can use the platform to achieve the said productivity gains themselves.
Financial challenges
Still, investors see triple-digit revenue growth Nvidia and the hope that Palantir will grow so quickly will temper expectations. In the first six months of 2024, revenue of $1.3 billion increased 24% compared to the first two quarters of 2023. While this represents solid growth for Palantir, it may not be enough for some growth investors.
The earnings picture is looking better, as Palantir earned $240 million in net income in the first half of 2024, compared to $45 million in the same period a year ago. Still, Palantir has only been profitable since the fourth quarter of 2022, so the growth rate is likely as much a result of early profitability as it is a product of the growth.
Moreover, its share price growth has taken over that of Palantir forward P/E ratio to 103 and the price-to-sales (P/S) ratio to 35. Either way, this is expensive and likely means the stock has already achieved some of the growth needed to make millionaires.
Furthermore, consensus estimates predict revenue growth of 24% in 2024 and 21% the following year. While such growth is bullish for Palantir, it may not be enough to support its current valuation.
Additionally, Palantir’s market cap has risen to $82 billion. A 100-fold gain in the stock would take its market cap to $8.2 trillion. This is about 2.3 times the market cap of $3.4 trillion Applethe current market leader in terms of market capitalization. That shows how much Palantir will have to grow to turn small investors into millionaires.
Will Palantir Make Millionaires?
Palantir can certainly help small investors become millionaires, but SaaS stocks aren’t likely to get them there on their own.
Indeed, the productivity gains offer the potential to take Palantir stock much higher over time. So even if new buyers don’t become millionaires, they will likely become significantly richer by owning these stocks.
However, revenue growth may not yet reflect the growth potential that AIP now offers its users. That could make the short- and medium-term outlook for Palantir negative for a while.
And even if time proves the analysts wrong and revenue growth accelerates, Palantir’s $82 billion size will mean its market cap will have to be more than double its current record market cap to deliver a hundredfold in profits compared to current levels. Furthermore, investors may question the 35 P/S ratio if that faster revenue growth doesn’t materialize.
Despite these concerns, Palantir could still emerge as a long-term winner, but at current levels, retail investors should temper “millionaire” expectations.
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Will Healy holds positions at Palantir Technologies. The Motley Fool holds positions in and recommends Apple, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
Can Palantir Stock Help You Become a Millionaire? was originally published by The Motley Fool
