Palantir Technologies (PLTR -0.34%) stock has been on an absolute roll in 2025, rising around 100% so far. Few stocks deliver that level of performance in five years, let alone half of one.
As a result of Palantir's performance, it has become one of the most popular stocks to own in the market; however, past performance is no guarantee of future results. Instead, investors need to look ahead to what's next for this artificial intelligence (AI) giant. Three years is a long way away, but what will Palantir's stock price look like at that point?
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Palantir's growth is two-pronged
Palantir is an AI-powered data analytics software platform that allows its clients to input several data streams into the platform and receive actionable insights. Originally, this software was intended for government use, but it has expanded to the commercial side within the past decade.
As a result of its long history with the government, it has become deeply interwoven throughout the government's workings, making it a challenging product to move away from. Still, that doesn't mean various government entities (both foreign and domestic) aren't expanding their use of Palantir's software. In Q1, government revenue increased by 45% in both the U.S. and worldwide, indicating that the AI-powered government is still being developed.
Although Palantir's government revenue exceeds its commercial revenue, the U.S. commercial segment is growing at the fastest rate. In Q1, U.S. commercial revenue rose 71% year over year, showcasing impressive adoption. However, global commerce sales were weak, mainly due to Europe's slower adoption of AI. That could turn around in the next few years and substantially benefit Palantir's long-term growth.
Companywide, Palantir posted an impressive 39% growth rate during Q1. It will be a tall task to maintain that growth rate for the next few years, but how much higher will the stock price rise if it does?
Even the most bullish Palantir investment thesis has problems justifying today's price
Let's consider an extreme bullish scenario for Palantir's stock to determine its potential upside from today's value. Over the past 12 months, Palantir generated $3.11 billion in revenue. Instead of the current 39% growth rate, let's assume it can accelerate to 50% and sustain this rate over the next three years. If it can do that, Palantir would have $10.5 billion in revenue.
Palantir is also starting to mature as a business, so let's say its profit margin can improve to 30% during that time frame, which would indicate Palantir produced $3.15 billion in profits.
PLTR Profit Margin data by YCharts
That indicates significant growth from today's level, but we're still missing a few key information points to value the stock accurately. Many software companies trade for 10 to 20 times sales and 30 to 50 times earnings. If we give Palantir the benefit of the doubt and use the 20 times sales and 50 times earnings figure, that would give Palantir a stock price of $89 using the price-to-sales ratio, or $67 using the price-to-earnings ratio.
That's far less than today's stock price of about $150. That's what happens when you use actual growth projections to determine a future stock price. Palantir's stock has become unlinked from the actual business, and trades for an incredibly expensive valuation right now.
PLTR PS Ratio data by YCharts
Its current valuation prices in well over three years of growth, which indicates that today's valuation is incredibly frothy.
Investors need to understand this, and either reduce their Palantir position or steer clear of it entirely. Investors shouldn't be surprised if Palantir's stock price is lower three years from now, as Palantir must continue beating expectations or risk being sold off due to its expensive valuation.
