There’s a lot of hype and excitement around it Palantir Technologies (NYSE:PLTR) recently; in the past twelve months, shares are up 190%. The data analytics company has promising growth prospects, especially when it comes to artificial intelligence (AI). Many investors are hopeful that the company can become the next big name in the technology sector. Today the company is worth about $50 billion. But with so much potential ahead, is it possible that this will become a $1 trillion stock by the end of the decade?
Is the Oracle deal a sign that Palantir is going to get much bigger?
On April 4, Palantir and database giant Oracle announced that they would join forces to provide cloud and AI solutions to both businesses and governments. Palantir will use Oracle’s cloud infrastructure for its foundry workloads. And the AI platform will also be deployable on Oracle’s cloud network.
Oracle, with a market cap of about $320 billion, is a much larger technology company and can help Palantir potentially reach more customers by working together. By combining Palantir’s advanced analytics solutions with Oracle’s strong and reliable infrastructure, the companies can together provide enterprises and government organizations with robust solutions.
Palantir’s profits could soar
Growth is important, but so is profitability. A big reason why Palantir’s valuation isn’t higher today is because the company has only recently become profitable on a consistent basis. But Palantir has been moving in the right direction as margins improve, and combined with more revenue growth, its bottom line could look a lot stronger going forward.
In the company’s most recent quarter, during the last three months of 2023, revenue totaling $608.4 million increased 20% year over year. And Palantir forecasts first-quarter 2024 revenue (earnings due next week) to be between $612 million and $616 million as the company continues to grow.
Today, Palantir’s stock still looks expensive, trading as much as 250 times its residual earnings. But if the company can continue to grow its revenue while maintaining a strong profit margin, that multiple will drop, making the stock a sustainable investment.
Could Palantir be worth $1 trillion by 2030?
To see where Palantir’s valuation will be in 2030, it’s important to understand what its bottom line might look like at that point. Let’s assume that margins continue to improve and that Palantir’s profit margin is around 20% in 2030. And let’s be a bit optimistic and assume that the AI platform will attract many customers and that the company’s revenue will grow at an annual growth rate of 25% until then. Right now, Palantir expects sales to increase only about 20% this year.
Based on these assumptions, Palantir’s revenue could reach approximately $10.6 billion per year by the end of 2030. Assuming a 20% profit margin, that would mean annual revenues would be about $2.1 billion by then. And assuming the company has about 2 billion shares outstanding at that time, earnings per share would be about $1.05.
If investors are willing to pay a multiple of 50 times earnings and have a bullish view on Palantir’s future, the tech stock could be priced around $53. That would imply a 130% increase in the current price, bringing its valuation to around $107 billion.
While that would be a great return for investors, it would be well below $1 trillion. Unless the company’s growth rate increases dramatically between now and then or investors pay an extremely high multiple for the company, Palantir’s stock is unlikely to reach $1 trillion by the end of the decade.
Should you invest in Palantir stock?
Even if Palantir doesn’t reach the $1 trillion mark anytime soon, it could still be a good investment to buy and hold. The company continues to grow its business at a rapid pace, margins are improving, and the overall trajectory looks promising as AI increasingly becomes a focus for companies.
However, investors should be prepared to hold out for the long term, as Palantir’s near-term gains could be limited given its already high valuation.
Should You Invest $1,000 in Palantir Technologies Now?
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Oracle and Palantir Technologies. The Motley Fool has a disclosure policy.
Could Palantir Technologies Be a $1 Trillion Stock by 2030? was originally published by The Motley Fool
