Since bottoming out in late 2022, Palantir Technologies (PLTR +3.24%) stock has risen by a remarkable 2,700%. And with a run like that behind it, new investors might naturally wonder if the stock is still a good buy or if it has gotten too pricey. The answer to that question for any specific investor will depend in part on their time horizon.
As of Friday, Palantir was trading at a price-to-earnings ratio of around 612 and a price-to-sales ratio of about 135. Compare that to the tech-heavy Nasdaq-100, which was trading recently at a P/E of about 33, and it's clear that Palantir is carrying a hefty premium.
Given those high valuations, a shift in market sentiment could send this artificial intelligence (AI) stock tumbling in the near term, so it might not be the best buy if you're looking for quick gains.
But for investors who can hold the stock for at least five years, one reason to consider buying now is the accelerating growth of the company's U.S. commercial business. Palantir, it appears, is still in the early stages of capturing a larger fraction of a massive addressable market. That makes opening a small position in the stock worth it.
Accelerating growth
Palantir's U.S. commercial business grew by 93% year over year in the second quarter and now accounts for nearly a third of the total top line. That segment grew by 71% in Q1, 64% in Q4 2024, and 54% in Q3 2024.
As those figures show, the commercial business' growth rate is accelerating. Meanwhile, Palantir continues to do a lot of business with the U.S. government. Total revenue grew 48% year over year in Q2, when the company surpassed $1 billion in quarterly revenue for the first time.
Palantir's recent performance is significant for another important reason. Fewer than 1% of companies founded in the last two decades have achieved annual revenues of $1 billion, according to research by Bain & Company. By reaching revenues of more than $3 billion on a trailing 12-month basis with its growth still accelerating, Palantir is showing it has the potential to scale into a much larger business in the next 10 years, which helps explain why the stock trades at such expensive valuations today.
NASDAQ: PLTR
Key Data Points
Why Palantir is winning
The consensus expectation among Wall Street analysts following the company is that Palantir's annual revenue will grow at a compound annual rate of 38% over the next four years to reach $15 billion by 2029. Palantir's AI-powered platforms help companies organize their data and analyze it for faster decision-making. This is allowing companies like Citibank to perform some data-driven tasks that previously took days in seconds.
Its ability to save its clients time and money gives Palantir a competitive advantage. Its software integrates with its customers' operations, so that it becomes an essential part of those companies' growth strategies.
At the end of the second quarter, Palantir had 849 customers, 43% more than it had a year prior. CFO David Glazer said the company is seeing "higher ambition" with newer customers, indicating there is still insatiable demand for its software. Glazer also noted that existing customers continue to expand their usage of Palantir "at a faster rate."
The stock trades at high multiples of sales and earnings, but then again, Palantir is one of the rare software companies reporting accelerating revenue growth, and it's doing so while reporting a sky-high profit margin that's above 30% and still increasing.
