Why Is Everyone Talking About Palantir's Stock?

Palantir (NASDAQ: PLTR) has been one of the hottest stocks in town, more than tripling its share price over the last 12 months.

Its strategic position as a leader in the artificial intelligence race as well as its significant exposure to the public and private sectors have the market's hopes regarding its longer-term prospects soaring.

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Let's explore those aspects more deeply to help investors better understand the opportunity ahead for this tech company.

Image source: Getty Images.

What does Palantir do?

Founded in 2003, Palantir built software to help the U.S. government with its intelligence work. Over time, the tech company expanded into other parts of the public sector and later into the private sector.

Palantir's value proposition to its customers is simple. It helps organization analyze their vast and complex datasets to make better decisions. It does this via its four major platforms: Gotham, Foundry, Artificial Intelligence Platform (AIP), and Apollo.

Gotham primarily serves the defense industry, while Foundry focuses on the commercial sector. To ensure that Gotham and Foundry can deliver the best services, Palantir leverages Apollo to provide rapid and secure updates to its customers, regardless of their working environment.

The final platform, AIP, is Palantir's latest offering for artificial intelligence (AI) technologies, such as generative AI. Using AIP, existing customers (running on Gotham or Foundry) can quickly deploy and run the latest AI technology on top of their data infrastructure, ensuring the transition is as seamless as possible.

To use Palantir's services, customers usually enter into one to five-year contracts with the company. In the year ended Dec. 31, 2024, 55% of Palantir's revenue came from government customers, while the rest came from commercial users. Geographically, the U.S. accounted for 66% of revenue, and the remaining came from overseas.

Why is everyone excited about Palantir?

Palantir has been a successful growth company, with revenue expanding by 50% in the last two years alone. While impressive, investors think the company has yet to reach its full potential.

The most significant opportunity for Palantir lies in the ongoing development and adoption of artificial intelligence technologies. According to Statista, the global AI market will be more than $800 billion by 2030, up from $244 billion in 2025.

As one of the early movers in offering data analytic software solutions (and now AI), Palantir is strategically positioned to leverage its technology know-how, solid reputation, and extensive relationships with government and commercial clients to build a sizable market share in this emerging industry.

While it's still in the early days, there are signs that Palantir is already gaining momentum in this revolution. For instance, U.S. commercial customer count and revenue surged 73% and 64% year over year in the fourth quarter of 2024. The number of commercial deals closed in that quarter was 188, up 45% compared to the same period in 2023.

The rise of AI will also help Palantir build a sizable commercial business that rivals its government business. Expanding this segment is essential as the opportunity in the private sector is as significant (if not more) than the public sector, so it's natural for the tech company to generate at least 50% of its revenue from private customers. By offering customers the entire stake of tools (Foundry and AIP), Palantir stands a better chance at attracting and retaining new commercial customers.

It is also worth mentioning that while Palantir's government business is already massive, there are ample opportunities to grow that business. One thing is that there are rising concerns about the unsustainability of government spending -- think Elon Musk's DOGE role -- suggesting that the demand for world-class software to improve the efficiency of the public sector will grow with time. Besides, the ongoing geopolitical tension will keep global defense spending high (and potentially increasing in the years to come), which could boost demand for Palantir's defense-related offerings.

In short, the future looks exceptionally bright for Palantir, both in the public and private sectors.

What it means for investors?

Palantir has come far from its initial role in serving government customers.

While it has been successful thus far, its future is even brighter as it rides on trends like the advancement of AI, ongoing geopolitical tension, etc.

Investors looking for an AI software company should closely watch Palantir.

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Lawrence Nga 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.