Prediction: Buying Palantir Stock Today Could Set You Up for Life

The booming demand for artificial intelligence (AI) software has supercharged Palantir Technologies (NASDAQ: PLTR) in the past year, with shares of the company rising more than 510%, as of this writing. This remarkable run can be attributed to the data analytics and software-platform provider's improving growth profile in recent quarters as more and more customers are using its AI offerings.

The company released its fourth-quarter 2024 results on Feb. 3, crushing Wall Street's expectations handsomely. As a result, Palantir stock shot up a remarkable 23% following its report. The stock surged impressively, despite trading at an extremely rich valuation.

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However, a closer look at the way Palantir is benefiting from the opportunity in the AI software-platforms space will tell us just why the market is rewarding this company with a premium valuation.

Palantir remains one of the best bets in the AI software-platforms market

Palantir reportedly has one of the best AI platforms in the market as per third-party research, which puts it on course to make the most of a market that's expected to generate $153 billion in revenue in 2028. There's the potential for more upside in the long run, thanks to the potential impact of AI on global productivity over the next decade.

Accenture estimates that AI could double the global annual economic growth rate by 2035, and integrating AI software into business operations is one of the ways in which companies and governments are going to enhance efficiency. Palantir is already capitalizing on this trend with its Artificial Intelligence Platform (AIP).

This platform enables Palantir's commercial and government customers to integrate generative AI into their operations, allowing them to make decisions in real time and improving the efficiency and productivity of their business processes. This explains why Palantir management pointed out on its latest earnings conference call that AIP is fueling new-customer acquisition apart from opening up "significant expansion opportunities" with existing customers.

The company witnessed a 43% year-over-year increase in its customer count in the fourth quarter of 2024, faster than the 35% increase it saw in the same quarter last year. Along with this, the company's net dollar retention rate increased by 12 percentage points from the prior-year period to 120% in Q4. As this metric compares the spending by Palantir's customers at the end of a quarter to the spending by those same customers in the year-ago period, a reading of more than 100% suggests that they increased the adoption of the company's platform.

Even better, the rapid growth in the customer count and Palantir's ability to win a bigger share of its customers' wallets led to a remarkable year-over-year jump of 40% in its remaining deal value (RDV) last quarter to $5.4 billion. That was a major improvement over the 22% jump in this metric in the third quarter.

The acceleration in Palantir's RDV is good news for the company and its investors as it refers to the "total remaining value of contracts as of the end of the reporting period." The fact that this metric increased at a faster pace than the 36% year-over-year increase in the company's revenue in Q4 points toward stronger top-line growth going forward.

For some perspective, Palantir finished 2024 with a 29% increase in revenue to $2.87 billion. It's expecting a slight acceleration in revenue growth in 2025 to just over 30%. However, don't be surprised to see the company delivering much stronger growth than expected in 2025 and beyond, thanks to its rapidly growing revenue pipeline on account of the red-hot demand for its AI software platform.

Could this stock set you up for life?

Palantir has made investors significantly richer in the past year. However, investing in just one stock in anticipation of life-changing returns isn't a smart move as any potential slowdown in the company's growth could send its stock spiraling. It's always a good idea to build a diversified portfolio spanning companies across multiple industries that can deliver robust long-term returns.

Palantir has the potential to be one such growth pick for investors looking to build a portfolio that could possibly help them become millionaires in the long run. Of course, you may be wondering if Palantir is worth buying right now, even as a part of a diversified portfolio, considering its expensive valuation.

After all, Palantir is trading at an expensive 74 times sales and 454 times earnings as of this writing. However, as discussed earlier, the company is one of the leading players in the AI software market and is attracting new customers while encouraging existing customers to spend more on its offerings. That's why it won't be surprising to see Palantir's revenue and earnings growth taking off in the long run.

This explains why Palantir's forward earnings multiple of 175 is significantly lower than its trailing multiple. Also, the company is forecasting a 41% increase in its adjusted operating income this year, which is faster than its projected revenue growth for the year. That faster growth can be attributed to its favorable unit economics, which means that it's spending less money to generate more revenue.

There's a solid chance that Palantir can sustain terrific levels of earnings growth in the long run and justify the expensive valuation at which it's trading. That's why investors looking to buy a growth stock can still consider adding Palantir to their portfolios, even after its outstanding run in the past year.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Accenture Plc and Palantir Technologies. The Motley Fool has a disclosure policy.