Palantir Technologies (PLTR +4.86%) stock was one of the top performers on the stock market in 2024, jumping 340% in 2024.
The defense tech stock was fueled by a ramp in revenue growth and operating margin, as its artificial intelligence platform (AIP) gained traction with both federal government customers and its U.S. commercial business.
The company got its start in counterterrorism serving the federal government after 9/11, and it's since added new platforms, including AIP in 2023, which supercharged its business. Meanwhile, the AI boom also led investors to bid up the stock. Toward the end of last year, the stock jumped following a strong third-quarter earnings report and on the election, as investors anticipated more spending by defense contractors like Palantir.
Palantir enters 2025 with a lot of momentum in the business, as revenue growth has accelerated for five quarters in a row and operating margin has improved for eight consecutive quarters.
Driven by AI demand and improving utility in the commercial sector, Palantir scaled up its business, and margins have expanded significantly, delivering on the promise of its subscription business model. Along the way, it's attracted a lot of attention among investors, but can Palantir help you retire a millionaire? Let's take a look at the reasons to bet on the stock long term, as well as why you may want to look elsewhere.
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Palantir's success story
Because of its unique history in counterterrorism and defense tech, Palantir has significant competitive advantages in its niche of data mining, and the company says that it generally competes with in-house solutions from its potential customers. As it said in its annual report, "Organizations frequently attempt to build their own data platforms before turning to buy ours."
Additionally, the company's AI platform significantly ramped up business with commercial customers, and it accelerated its sales cycles, going from product trial to a multimillion-dollar contract in less than two months.
U.S. commercial revenue rose 54% in the third quarter to $179 million, emerging as a key growth driver for the company. The U.S. commercial market is much larger than the federal government, so its growth in that segment is a bullish indicator for its future.
Palantir also continues to introduce new products, including a visual navigation AI that can guide autonomous drones in areas without GPS.
The risks facing Palantir
As a business, Palantir looks solid. It has an impressive set of competitive advantages, given its focus on defense tech and experience in data mining and analytics.
However, the company's growth rate may not be enough to justify the stock's lofty valuation. In fact, Palantir is now one of the most expensive stocks on the market based on its price-to-sales ratio of 72, which bakes in extraordinarily high expectations. While software stocks tend to trade at high valuations, even fast-growing ones tend to trade at a price-to-sales ratio of 20 or less, meaning Palantir trades at a significant premium compared even to its high-growth peers.
Given that most of its business comes from the government, it may be hard for Palantir to significantly accelerate its growth rate past the 30% it reported in the third quarter. Despite being connected to AI, it doesn't have the same potential to go parabolic that a stock like Nvidia does.
NASDAQ: PLTR
Key Data Points
Will Palantir help make you a millionaire?
Palantir still has a lot of growth potential over the long term, but at the current valuation, investors are better off taking a wait-and-see approach with the stock. The valuation is likely to come down, either by the stock price falling or the business growing into the multiple, and at that point, the risk/reward will be more favorable for Palantir.
After the stock more than quadrupled in one year, it shouldn't be a surprise that it's due for a breather.
