Software company Palantir Technologies (PLTR 1.66%) has been a big winner since artificial intelligence (AI) became a focal point for Wall Street. The stock has appreciated over 300% since January 2023, shortly after the explosion of ChatGPT's popularity.
Palantir is worth over $50 billion in market cap today, and the company's growth prospects look bright. Some say that Palantir is poised to become the next "big technology" company, joining the likes of Nvidia and Microsoft in the trillion-dollar club.
Let's pump the brakes: That's roughly a 20x increase from where the stock is today. But what about the future, by, say, 2030? This Fool looked at the numbers to see how likely that might be. Here is what you need to know.
Why the optimism about Palantir's future?
Palantir builds custom software applications on its four primary platforms: Foundry, Gotham, AIP, and Apollo. Apollo deploys and manages these applications, while the others serve specific purposes.
Gotham is a commercially available "operating system" software that helps organizations run more efficiently. Foundry is used heavily by the government to connect data to real-time operations. Lastly, AIP, or artificial intelligence platform, is Palantir's newest product for developing and launching AI applications.
NASDAQ: PLTR
Key Data Points
Artificial intelligence has sparked a frenzy of companies rushing to adopt and utilize AI in their businesses. You see this evidence everywhere. Big technology companies have fused AI capabilities into their core products. Enterprise software companies across Wall Street are doing the same, and the major cloud platforms are investing billions of dollars to acquire the AI chips needed to support this demand (look at Nvidia's rampant growth).
It appears that Palantir is in the right place at the right time. Palantir's software is complex and often mysterious, especially with government applications. However, one could point to Palantir's long-term relationship with the U.S. government to indicate that its technology can generate positive real-world value for customers. Additionally, you can look at the increasing sales momentum since Palantir launched AIP a year ago:
PLTR Revenue (Quarterly YoY Growth) data by YCharts
The company's customer count rose 42% year over year in Q1, including a 69% bump in U.S. commercial clients to 262. Palantir's remaining deal value (value of future business awarded but not billed) rose the most, jumping 74% over the prior year. It all points to a continued acceleration of revenue growth, which is very promising, considering this might be the beginning of a multiyear growth era as AI technology matures and spreads.
A trillion-dollar market cap is a high bar to clear
Palantir has some significant growth potential. But still, going from a $50 billion valuation to $1 trillion is a tall task.
Remember, this is a business that, while exciting, is still doing "just" $2.3 billion in annual revenue. The stock's massive move has partly come from a steeper valuation in addition to growth. Valuations don't go up forever, so Palantir must grow significantly for years to approach a $1 trillion market cap.
PLTR Revenue (TTM) data by YCharts
According to consensus analyst estimates, Palantir's 2024 revenue will be $2.7 billion, a 30% increase over 2023. AI could reasonably fuel prolonged growth, but investors should keep expectations realistic. For this exercise, I will cap annual revenue growth at 30%, but give a "nod" to AI's upside by assuming Palantir grows at 30% annually for the next six years.
That would mean that Palantir will generate approximately $13 billion in revenue in 2030. Using today's price-to-sales ratio (P/S), this would generate a 2030 market cap of $338 billion.
Is Palantir a future trillion-dollar stock?
The math shows that growing to such a high market cap by 2030 will be challenging. Palantir's stock is already valued near its highest P/S ratio in a year, while the broader market sits at all-time highs. I wouldn't count on that valuation over the long term. Instead, Palantir will need to grow revenue significantly higher than expected to have a realistic shot at a trillion-dollar valuation.
That doesn't account for long-term risks like competition or uncertainty about how much companies can and will spend on Palantir's products and services. Palantir's product can be remarkable, but it's reportedly expensive to purchase, which could limit its customer base over time.
Palantir could eventually become a trillion-dollar stock; it's just not likely to happen in the next six years. No worries -- it's still a fantastic business, with excellent fundamentals and accelerating revenue growth. The future looks bright, whether at a $1 trillion market cap or not.
Editor's note: This article has been corrected. Palantir's market cap is near $50 billion.
