Palantir Technologies (PLTR 0.58%) soared 85% this year as of June 23. The data analytics company expects to grow its top line by more than 36% in 2025 as its robust artificial intelligence (AI) platform has been experiencing a surge in demand. Palantir also benefited from being a popular stock among retail investors, which enabled its valuation to continue rising higher.
Entering trading on Tuesday, its market cap was $330 billion, with its valuation now being higher than Coca-Cola, UnitedHealth Group, Chevron, and many other blue-chip companies. The big questions, however, are can it still go higher, and can it top a $1 trillion valuation within the next couple of years?
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It's all about growth potential for Palantir, not valuation
Palantir's share price got disconnected from its fundamentals a long time ago. Looking at earnings or revenue multiples isn't helpful in assessing the stock simply because there's no way to rationalize the stock's value in such a way. It generated more than $3.1 billion in sales over the past four quarters, and right now, it's trading at around 110 times its sales.
To help put this into perspective, consider the following scenario: If top AI stock Nvidia were to trade at such a multiple, its market cap would be north of $16 trillion, and it would be more than four times as valuable as the next largest stock.
Because of this, Palantir is more of a speculative stock than a blue-chip investment. Its valuation is closely tied to future growth expectations. One reason why those expectations may rise is the push from U.S. President Donald Trump for allies to ramp up defense spending. Palantir is a trusted provider of counterterrorism software for government agencies around the world. If countries spend more on defense, Palantir may inevitably benefit. Many of America's allies in NATO appear to be willing to invest as much as 5% of their GDP on defense. The U.S., which spends the most, spent around 3.2% of its GDP on defense last year, according to data from NATO.
The path to a $1 trillion market cap
If Palantir's growth rate accelerates due to an influx of government spending, it's conceivable that this already scorching-hot stock could rally and go into yet another gear. Over a two-year window, Palantir's stock would need to rise by another 200% to get close to a $1 trillion market cap.
For your average stock, this seems extremely unlikely. But for a fast-growing business such as Palantir, riding the AI hype and benefiting from strong demand from retail investors, it's not an outlandish scenario. The stock would need to increase by an average of 75% per year for the next two years -- starting from where it is right now. And that would actually be a slower return that what it averaged in each of the past two years: In 2024, it rose by 341%, and the year before, it increased by 167%.
I'm not suggesting it's probable that Palantir can reach a $1 trillion market cap within the next couple of years, but given all the factors which have helped push its valuation to its current levels, I could see a way for it to achieve such a milestone.
Should you invest in Palantir's stock today?
Palantir is a speculative stock to own, and it should be treated as such. That means it's a risky and potentially volatile investment. In a best-case scenario where the stock market remains strong, Palantir's growth rate accelerates, and there's an increase in government spending on defense across the globe, then the stock could top $1 trillion in two years. But without all those catalysts, it's also possible that the stock inevitably gives back some of its gains and investors cash out profits amid more concerning economic conditions.
This isn't a stock I'd invest in given that its fundamentals don't support its valuation. But if you're bullish on the stock and want to buy it even with all the downside risk, I'd suggest at least keeping a close eye on it and putting in some stop losses to ensure that you keep your portfolio protected.
