Palantir Technologies (PLTR 0.70%) went public with a direct listing on the stock market in September 2020, and shares of the software platforms and data analytics provider delivered healthy gains since then.
Palantir stock is up 655% since making its stock market debut. However, all of Palantir's stellar gains have arrived in the past couple of years, driven by the company's move into the artificial intelligence (AI) software platforms market. It is worth noting that Palantir was underperforming the broader market before its move into AI.
NASDAQ: PLTR
Key Data Points
Investors bought Palantir stock hand over fist over the past couple of years, leading to eye-popping gains of 966% during this period. So, an investment of $1,000 made in Palantir two years ago is now worth more than $10,600. The good part is that Palantir is scratching the surface of a massive end-market opportunity in the AI software platforms space, which could help investors become richer in the long run.
Of course, putting all your money into just one stock in the hope that it will become a big winner isn't ideal, as any negative development at Palantir could lead investors to experience massive losses. However, buying Palantir as a part of a well-diversified portfolio could be a smart move. Let's look at the reasons why.
Palantir's growth is just getting started
Palantir consistently ranks among the top providers of AI software platforms by market research firms IDC and Forrester. So, it is not surprising to see why the interest in Palantir's Artificial Intelligence Platform (AIP), which helps organizations and governments embed AI into their operations, increased remarkably in the past year.
On its November 2024 earnings conference call, Palantir management provided several instances of how AIP is enabling its customers to make their business processes more efficient. As a result, customers are now signing bigger contracts to deploy AIP into more areas of their business, boosting the company's unit economics in the process and enhancing its margins.
This explains why Palantir's total contract value (TCV) from commercial customers increased an impressive 52% year over year to $612 million. That was higher than the 51% year-over-year increase in Palantir's commercial customer count for the quarter. Palantir's commercial TCV increased at a faster pace than the 30% year-over-year jump in its quarterly revenue to $726 million, suggesting that the company is building a solid revenue pipeline for the future.
The good part is that Palantir's AIP-driven growth is just getting started. That's because the AI software platforms market is expected to generate annual revenue of $153 billion in 2028 as compared to $27.9 billion in 2023, according to IDC. The market research firm is projecting an annual growth rate of 40.6% for this market, and the growth of Palantir's commercial business last quarter is a clear indication that it is growing at a faster pace than the end market.
Palantir seems to be gaining a bigger share of the market, which should pave the way for stronger growth in the long run that could be better than what analysts are projecting. Palantir is expected to report 26% revenue growth for 2024 to $2.8 billion, followed by 25% growth in 2025 and an estimated 21% increase in 2026.
However, Palantir could easily grow at a faster pace than those expectations as AI is accelerating its growth. The company's revenue in the first quarter of 2024 increased 21% from the year-ago period, followed by a 27% increase in Q2. So, the company's Q3 growth improved further, and that trend is likely to continue, given the bigger deals that Palantir is now being able to crack thanks to AI.
Is the stock worth buying right now?
The biggest concern for anyone looking to buy Palantir right now is the valuation. The stock is definitely not cheap as it is trading at a whopping 359 times earnings. However, its forward earnings multiple of 149 points toward a massive increase in earnings.
So, Palantir may not be an ideal bet for investors looking for value. However, growth-oriented investors can still be interested in buying it as its accelerating growth, improving share, and the huge AI software platforms market could supercharge its business significantly going forward and help it justify its expensive valuation.
