Palantir Technologies (NASDAQ: PLTR) is one of the most heavily traded tickers on the U.S. market. The stock is especially popular among retail investors, many of whom admire CEO Alex Karp for his blunt language and brutal honesty. In turn, Karp has often said the retail crowd understands Palantir better than Wall Street.
The launch of ChatGPT in late 2022 popularized generative artificial intelligence. That was a big catalyst for technology companies because it boosted demand for automation. But Palantir has likely been the biggest winner to date. The stock has soared 1,580% since January 2023, topping the next closest contender in the S&P 500 -- which happens to be Nvidia -- by more than 900 percentage points.
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That brings me to two important questions: Is Palantir still a worthwhile investment today? Could the stock turn $20,000 invested this year into $1 million over the next decade? Here's what investors should know.
Palantir develops software that helps businesses integrate and analyze complex data. The company says its key differentiator is an ontology-based software architecture. An ontology is a framework that links digital data to real-world objects to define nuanced relationships. Users can query ontology data to surface insights and drive decision-making that improves over time.
In 2023, Palantir launched an artificial intelligence (AI) platform called AIP, adding support for natural language processing to its core software, Gotham and Foundry. AIP lets users engage those products conversationally. Forrester Research has since recognized Palantir as a leader in machine learning and artificial intelligence platforms.
Palantir has reported increasingly impressive financial results since launching AIP, and it continued to fire on all cylinders during the fourth quarter of 2024. Total customers increased 43% to 711, and the average existing customer spent 20% more. In turn, revenue increased 36% to $828 million, the sixth consecutive acceleration, and non-GAAP net income increased 75% to $0.14 per diluted share.
The company is well positioned to maintain that momentum as demand for AI increases. Palantir Chief Technology Officer Shyam Sankar on the fourth-quarter earnings call told analysts, "Years of foundational investments in our infrastructure and ontology have positioned us uniquely to harness and deliver on AI demand." And International Data Corp. (IDC) estimates AI platform spending will increase 40% annually through 2028.
Image source: Getty Images.
While Palantir is well positioned to capitalize on growing demand for AI, prospective investors should know the stock trades at a very expensive price-to-earnings (PE) ratio. Wall Street expects earnings to increase at 30% annually through 2026. That makes the current valuation of 265 times earnings seem absurdly overvalued.
Admittedly, Palantir beat the consensus earnings estimate by an average of 12% in the last four quarters. But the present valuation would be expensive even if that trend continues. So, the stock is unlikely to turn $20,000 into $1 million in the next decade. Doing so would require a 50-fold return, meaning the share price would need to increase at 48% annually.
Not only would Palantir need to grow earnings at least that fast for such an outcome to be plausible, but also the 50-fold return would raise its market value to $12.5 trillion, up from $250 billion today. That would almost certainly make Palantir the most valuable company on the planet. For context, Apple is currently the most valuable company, and its market value is just $3 trillion.
However, respected analyst Dan Ives at Wedbush Securities thinks Palantir will eventually have a trillion-dollar market value, and I agree with that assessment. So, investors eager to own the stock could buy a small position today, so long as they understand the pricey valuation could lead to a significant decline. Additionally, investors that buy shares today should have a timeline of being able to hold shares for at least five years.
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Trevor Jennewine has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Apple, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.