Meet the Monster Stock that Continues to Crush the Market

Palantir Technologies (NASDAQ: PLTR) is one of the market's hottest growth stocks. When the data mining and analytics company went public via a direct listing on Sept. 30, 2020, its stock opened at $10 a share. But as of this writing, it trades at about $76 -- so a $10,000 investment would have grown to $76,000 in just four-and-a-half years.

That same investment in an S&P 500 index fund would only be worth about $16,700 today. Let's see why this monster stock outperformed the market by such a wide margin, and if it still has room to run after generating those multibagger gains.

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Image source: Getty Images.

What does Palantir do?

Palantir, which was named after the all-seeing stones from The Lord of the Rings, was founded in 2003 in response to the Sept. 11 terror attacks in 2001. It developed a streamlined data collection and analytics platform that broke down the inefficient silos between U.S. government agencies and supported smarter, data-driven decisions.

Palantir was backed by the CIA's venture capital arm, In-Q-Tel, and it was reportedly used to track down Osama Bin Laden in 2011. By the time it went public, most U.S. government agencies had adopted its platform to organize their data.

Palantir operates two main platforms: Gotham for its government customers and Foundry for its commercial customers. Gotham generates steadier growth through its government contracts, but Foundry is expanding a lot faster as its battle-tested tools impress more large commercial customers. Most of that growth is driven by its U.S. enterprise customers.

How fast is Palantir growing?

From 2020 to 2024, Palantir's revenue expanded at a compound annual growth rate (CAGR) of 27%. However, its growth cooled off significantly in 2022 and 2023.

Data source: Palantir.

It attributed that slowdown to two challenges: macro headwinds for its commercial business and the uneven timing of its new government contracts. That slowdown caused its stock to sink to an all-time low of $6.00 on Dec. 27, 2022.

But in 2024, Palantir's revenue growth accelerated again. Its commercial business warmed up again as the robust growth in the U.S. offset its slower overseas expansion. It also expanded its artificial intelligence (AI) platform's Workflow Builder to help its customers create their own custom AI apps, actions, and agents. Those new tools tethered it to the booming AI market.

At the same time, Palantir's government business recovered as intensifying geopolitical tensions and conflicts sparked more demand for its data mining and analytics services.

Palantir was initially unprofitable, but it turned profitable on a generally accepted accounting principles (GAAP) basis in both 2023 and 2024 as economies of scale kicked in, it streamlined its spending, and it reined in its stock-based compensation expenses. Those rising profits led to its inclusion in the S&P 500 index last September and the Nasdaq-100 index last December.

Can Palantir keep beating the market?

For 2025, Palantir expects its revenue to rise 31% as its government and commercial businesses fire on all cylinders. It also expects to stay profitable on a GAAP basis in every quarter of the year. From 2024 to 2027, analysts expect its revenue and GAAP EPS to grow at a CAGR of 31% and 57%, respectively, as the data analytics and AI markets continue to expand.

However, that rosy outlook assumes the Trump Administration's plans to slash government spending won't strangle its government business. It also assumes the Trump administration's unpredictable tariffs won't generate headwinds for its top commercial clients. If either of those challenges throttles its growth, its stock could crumble under its soaring valuations.

Palantir is priced for perfection right now. At $76 per share, its trades at a whopping 246 times this year's earnings. Its enterprise value of $172.3 billion also looks frothy at 45 times this year's sales. That might be why its insiders have already sold nearly twice as many shares as they've bought over the past 12 months.

So while Palantir might have a bright future, investors shouldn't pay the wrong price for the right stock. It's a bit too hot to handle right now, and it's more likely to underperform the market this year as its high valuations cap its upside potential.

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Leo Sun 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.