Palantir Technologies (PLTR +1.57%) posted another blockbuster earnings report in early February. Its fourth-quarter revenue surged 70% year over year, accelerating from the 63% growth in the previous quarter.
The main dilemma for investors considering the stock is valuation. It's expensive, trading at a forward price-to-sales ratio (P/S) of 48 times and a forward price-to-earnings multiple (P/E) of 100 at the time of this writing. Many investors recognize the quality of Palantir's business, but the average Wall Street analyst has kept a hold rating on the stock for the past year, and that can be attributed to its high sales multiple. Year to date, the stock is down 24%.
There's competition and negative sentiment across software stocks right now, but there's one reason I continue to hold Palantir shares and remain bullish on the company's long-term growth potential.
Image source: Getty Images.
Palantir is building industrywide operating systems
In its annual report, the company lays out its long-term strategy, which is why I believe it may have greater growth potential than many investors realize. Here's what it says on page 7 in its 2025 Form 10-K:
In addition to supporting individual institutions, our platforms have become central operating systems for entire industries and sectors. We are developing industry operating systems to help companies and government agencies manage operations across their entire organizations. These operating systems allow our software to be distributed at scale to institutions within given industries.
Palantir is not just selling software to individual companies. It aims to make its platforms, such as its Foundry and Artificial Intelligence Platform, the standard for every company across an entire industry.
It's well on its way to achieving this: Management reported a 137% year-over-year increase in commercial revenue last quarter. As it continues to execute this strategy, its competitive moat becomes stronger.
NASDAQ: PLTR
Key Data Points
Once Palantir has signed on a healthcare company, for example, it becomes easier for Palantir to form partnerships with hospitals and other organizations throughout the medical supply chain. This is how it is not just embedding itself into a company's operations but also becoming the default operating system running an entire industry. Management says these industrywide relationships will have a significant impact on its business over time.
The company is demonstrating a powerful growth engine. For example, most of the top 10 original equipment manufacturers in the automotive industry use Palantir, which explains why it also serves over 30 additional automotive suppliers.
Focusing on the long term
Analysts expect Palantir's revenue to more than triple from 2025 levels to over $14 billion by 2028. Valuation matters, and this is a risk for the stock, which may underperform in the near term even as the business continues to meet or exceed analysts' expectations.
Still, the longer your time horizon, the higher the correlation between a company's performance and its stock price. This is why I have chosen to start a small position in Palantir stock, even though it looks expensive, and gradually buy more shares over time. This is basically a long-term bet that it can execute on the strategy outlined in its annual report, which points to a long runway for growth.
