Artificial intelligence (AI) has dominated Wall Street’s attention since it burst onto the scene about two years ago. While Nvidia was perhaps the hottest AI stock of 2023, Palantir Technologies (NYSE:PLTR) seems to have taken the lead in the race this year. The stock price has exploded, rising more than 235% in the past year, and about 900% since January 2023.
What caused the price increase in 2024? It likely has to do with the company’s Artificial Intelligence Platform (AIP), which has been a runaway success and has helped drive profitable and accelerated revenue growth.
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Now that Palantir has a market cap of $147 billion, is it time for investors to think bigger? Could Palantir become a billion-dollar company by 2030?
Here’s what you need to know.
It does not seem an exaggeration to call AI one of the most important developments in modern history. According to market research firm IDC, AI could create nearly $20 trillion in cumulative economic value by 2030. This is both direct and indirect, meaning that it not only concerns the AI applications themselves, but also the value that AI can create in other sectors through increased productivity and efficiency.
Why is this important? It shows how diverse the impact of AI can be, and that plays directly into Palantir’s hands. Palantir creates and deploys custom AI, machine learning, and data analytics software. This software can perform a countless number of tasks. Palantir started doing government work, helping with secret missions within the military. It helped with the rollout of the COVID-19 vaccine during the pandemic. Today it helps hospital systems run efficiently and detect financial fraud, among dozens of other applications.
Any organization large enough to have many moving parts (people, processes and data) is a potential customer.
Palantir’s total revenue grew 30% year-over-year in the third quarter, but U.S. revenue grew 44%, driven by 40% growth in its government business and 54% commercial growth. As US revenue grows and becomes a larger share of the overall pie, this accelerates the company’s overall revenue growth:
Palantir has grown its US commercial customer base fivefold in the last three years and, remarkably, still only has 321 commercial customers in the US. There are approximately 20,000 large companies (at least 500 employees) in the United States. That’s a big opportunity, even if Palantir ultimately only works with a fraction of them.
It’s hard to predict how much more Palantir’s growth will accelerate, but this growth story appears to be in its early stages.
To become a $1 trillion company, Palantir would need to grow roughly sevenfold from its current size. Sales growth, appreciation or both can achieve that.
First, let’s predict what Palantir’s revenue could look like in 2030. Analysts estimate that Palantir’s revenue will reach $2.8 billion by 2024. I extrapolate that over five years with hypothetical growth rates of 20%, 30% and 40%. That would look like this:
|
Annual growth rate |
Annual turnover ending December 31, 2029 |
|---|---|
|
20% |
$7.0 billion |
|
30% |
$10.4 billion |
|
40% |
$15.0 billion |
Table by author.
Palantir’s stock would need to trade at quite high valuations to reach a market cap of $1 trillion with revenue of $7 billion to $15 billion. The stock’s price-to-sales ratio (P/S) should be between 67 and 143, depending on whether Palantir’s revenue hits the high or low end of these projections.
I’m not going to tell you it’s impossible. Snowflake was one of the hottest stocks on Wall Street at the end of 2021 when the company’s price-to-earnings ratio peaked at 183. However, that was during a stock market bubble. Snowflake is still down almost 60% from its previous high, and its price-to-earnings ratio has collapsed by 90%. Such extreme valuations rarely end well.
Today, Palantir trades at a price-to-earnings ratio of 58. That’s not the Snowflake high of 2021, but it is even higher then its peak during that same market bubble!
Technically, Palantir may defy expectations, but I think it’s doubtful the stock will approach a $1 trillion market cap by 2030. Palantir is a hugely impressive company, but the problem is that its stock is already baking in at least a few years. ‘value of growth. The calculation could change dramatically if the stock crashes to a much lower valuation or Palantir grows much beyond the 40% I predicted.
But beyond that, Palantir stock may be a bubble in itself, which could ultimately disappoint investors expecting more big things from the stock. Given all this, it’s highly unlikely that Palantir can reach a trillion-dollar valuation in just over five years. But the chances of it outpacing the market as a whole are still within reach and still worth a closer look.
Consider the following before purchasing shares in Palantir Technologies:
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Nvidia, Palantir Technologies, and Snowflake. The Motley Fool has a disclosure policy.
Will Palantir Technologies Be a Trillion Dollar Stock by 2030? was originally published by The Motley Fool
