Will Palantir Be a Trillion-Dollar Stock by 2040?
Palantir Technologies (NYSE: PLTR) is one of the more popular stocks among investors but also one of the more polarizing given its valuation compared to its recent revenue growth and the current slow growth in its government business. The investor intrigue with the company stems from its strong data-gathering and analytics platform, which the U.S. government has used for just important tasks as fighting terrorism and tracking the spread of COVID.
More recently, the company introduced its Artificial Intelligence Platform (AIP) and began to focus more on the commercial market. But will these efforts make it a trillion-dollar company in a little over 15 years?
Its revenue growth and valuation appear to be mismatched
U.S. commercial revenue has been a bright spot for Palantir, surging 40% year over year in the first quarter to $150 million. It added 41 U.S. commercial customers in the quarter, a 19% sequential increase.
The company has been aggressively courting commercial customers for its new AIP through workshops, showing how it can be applied to potential uses for their businesses. So far, this strategy has been working.
But the year-over-year growth in its government business has significantly slowed the past couple of years. It rose 19% in 2022, before decelerating to a 14% increase in 2023, then picked up slightly to 16% growth in the first quarter of 2024. Overall, total revenue rose 21% in the first quarter to $634.3 million.
That's solid growth, but the there is some concern that the company is not growing quickly enough to justify its current valuation, as it trades at a forward price-to-sales (P/S) ratio of more than 17. Take out its net cash, and its enterprise-value-to-sales ratio would drop to about 16. For high-margin software companies growing revenue in the mid-20% range, a multiple of 7 to 13 would be more typical in today's market and less historically.
PLTR PS Ratio (Forward) data by YCharts.
Could Palantir stock be worth $1 trillion by 2040?
With a market cap of about $47 billion, the stock would have to increase by more than 20-fold to reach $1 trillion. The company is projected to generate approximately $2.7 billion in revenue this year.
Hypothetically, if Palantir can grow its revenue by 20% a year consistently, it would generate approximately $50 billion in revenue in 2040. Place a 10 times multiple on that, and the company would be worth about $500 billion. That's an increase in value of more than 10 times, but still far less than $1 trillion.
However, if Palantir can accelerate its annual growth rate to 25%, it would generate about $96 billion in 2040 revenue. At that point, it could very well become a trillion-dollar stock.
Image source: Getty Images
Growing revenue by 25% a year for the next 16 years is no easy task. But if AI is still in its early days and Palantir technology becomes a foundational platform for both governments and commercial businesses, it's not impossible. The company could also use its cash to make some strategic and revenue-generating acquisitions. Back in 2020 and 2021, the company saw over 40% revenue growth, but revenue growth has been below 25% in the past two years, being just under 24% in 2022 and 17% in 2023.
Based on its current revenue growth, Palantir stock is overvalued in the near term. But that might not keep it from being worth 10 to 20 times more by 2040. The company has mission-critical technology, which when combined with AI, is still in the early days of being monetizing.
Outside of the government having used it to fight terrorism and Covid, Kinder Morgan has used Palantir technology to help predict when natural gas demand would suddenly increase or decrease, while Airbus has used its technology to help design a plan to increase production of its A350 aircraft without sacrificing quality. This shows the breadth of industries that can use its technology.
The company's future is bright, even if the stock's valuation is a bit rich at the moment.Should you invest $1,000 in Palantir Technologies right now?
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