Palantir Technologies (NASDAQ: PLTR) has been one of the top-performing stocks of the artificial intelligence (AI) era.
Since the start of 2023, the deep data analytics company has returned nearly 2,000% as it’s gone from a slow-growth, unprofitable company to a fast-growing, highly profitable business. That transition is largely due to the launch of its Artificial Intelligence Platform (AIP), which provides an AI layer over its other software analytics platforms like Foundry and Gotham, allowing users to easily retrieve data and gain insights by using AI chatbot interfaces that AIP connects to.
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Palantir’s stock growth has come not just from the strong performance in the business, but also from significant multiple expansion. On a price-to-sales basis, Palantir now trades at a sky-high ratio of 105, a level typically reserved for highly speculative growth stocks.
Given that valuation, there are clear questions about whether Palantir can continue to deliver market-beating returns to investors as its market cap has topped $300 billion, making it the most valuable pure-play software company on the stock market.
However, one Wall Street analyst thinks that Palantir can not only outperform the S&P 500, but more than triple to $1 trillion.
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Palantir’s path to $1 trillion
Wedbush’s Dan Ives is one of the biggest AI bulls on Wall Street as he has cheered on stocks like Tesla, Nvidia, and Apple. However, his recent forecast for Palantir stock may be his boldest one yet.
Following a sell-off in Palantir stock after its first-quarter earnings report in early May, Ives went on CNBC and predicted that Palantir would reach a valuation of $1 trillion in two to three years.
“They are leading when it comes to the AI revolution,” said Ives, and he has noted recent wins like selling its Maven Smart System to NATO. Ives also raised his price target on Palantir from $120 to $140 and maintained an outperform rating.
The Wedbush analyst didn’t give many specifics in his trillion-dollar forecast, though his prediction seems to be more based on the general growth of AI and Palantir’s status as a leading data platform as he’s also bullish on a number of other AI stocks.
However, a recent news report indicated one key tailwind in Palantir’s favor. According to a detailed report in The New York Times, the Trump administration has expanded the federal government’s relationship with Palantir. The government, which is by far Palantir’s biggest customer, is calling for agencies to share data with each other using Palantir’s platforms, a move being pushed by the efficiency and cost-cutting effort known as the Department of Government Efficiency.
Can Palantir get there?
With revenue growth of 39% in its most recent quarter, Palantir is growing fast enough that its revenue would nearly triple over the next three years if it maintained that growth rate.
Palantir could deliver even faster growth on the bottom line given the scalability of the subscription software model and its history of expanding its operating margin. However, Palantir’s valuation is likely to present a challenge to the trillion-dollar goal as the stock would still be expensive even if its price-to-sales valuation fell by 75%. Over time, its valuation should moderate, though the stock could maintain a premium for years if its growth rate remains strong.
Given the strong growth rate, the embrace by the federal government, and the broader demand for AI, the prospects for Palantir’s business continue to look strong. However, the stock’s valuation makes Palantir unlikely to reach $1 trillion. It’s priced to perfection, and any miss from the company or even weakness in the macro economy could sink the stock.
While Palantir’s surge has been remarkable, its valuation makes it much riskier than bulls like Ives seem to want to admit.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
