Palantir's long track record in AI positions it for serious growth.
The paradigm shift brought about by advances in artificial intelligence (AI) has had a profound impact on the market since early last year. The speed at which the big players in the AI space have climbed the ranks of the world's most valuable companies is breathtaking.
apple has secured the No. 1 position. MicrosoftBut as of this writing, both have market caps of more than $3.3 trillion. As Nvidia’s GPUs became the clear hardware favorite for handling AI workloads, with the chipmaker moving up the ranks to surpass $3 trillion in value, briefly occupying the top No. 3 position. the alphabet, AmazonAnd Meta platforms — each at the forefront of the AI revolution — boasting market caps of $2.2 trillion, $2 trillion, and $1.2 trillion, respectively.
Although it currently has a market cap of just $58 billion, that's not much to suggest. Palantir Technologies (PLTR 0.08%) Makes a strong candidate for future membership of the $1 trillion club. Investors need only look at the pace at which generative AI is being adopted to understand the opportunity Palantir is addressing.
Image source: Getty Images.
Decades of AI experience
Palantir only came to the attention of AI investors over the past year, but the company has a long and distinguished track record of developing AI tools. Its original business focus was on helping various agencies in the US intelligence community connect their legacy databases, share information, and analyze it, with the goal of helping them more effectively identify potential terrorist plots. was to allow exposure.
The company has since expanded its offerings, first to other government and law enforcement agencies and then to enterprises, providing AI-based data mining tools that help management make data-driven decisions. Thanks to Palantir's extensive experience with AI, the company was quick to develop additional useful solutions when the age of generative AI began early last year.
The company's Artificial Intelligence Platform (AIP) is the result of these efforts. Palantir also developed a unique go-to-market approach that has been extremely successful. To bring in new customers, the company offers potential clients “bootcamps” during which those businesses quickly develop AI tools they can actually use to meet their company's specific needs. These workshops allow potential customers to work side-by-side with Palantir engineers to solve real-world problems.
In its recent earnings call, management noted that 915 organizations have already participated in bootcamps, far ahead of the company's original plan for 500 such workshops. Additionally, Palantir's time to close deals is decreasing because once prospects try AIP, they are sold.
As a result, demand has been strong. In the first quarter, Palantir's revenue rose 21% year over year and 4% sequentially to $634 million. The showstopper metric in the quarter was US commercial revenue, which grew 40% to $150 million (about 24% of total revenue) thanks to strong AIP demand.
Palantir also delivered its sixth consecutive quarter of GAAP profits, and many believe it's only a matter of time before the company is selected for inclusion. S&P 500. Some investors believe that could happen as soon as this year. Additionally, its guidance gave investors even more reason to cheer, with management forecasting full-year growth of at least 45% for its US business segment.
Path to $1 trillion
Palantir's long track record of AI expertise and its work with both government and enterprise clients has many customers looking to it to deploy AI solutions in their operations. A separate opportunity that cannot yet be fully factored into Palantir's stock price is for individual countries looking to develop autonomous AI solutions, a trend that has already begun. Combine that with the secular tailwind of enterprise AI adoption and the company's vast opportunity becomes clear. That said, the expansion will take years, if not decades, to come to an end.
According to the Wall Street analyst consensus, Palantir should have revenue of $2.7 billion in 2024, giving it a forward price-to-sales (P/S) ratio of about 21. Assume that its forward P/S ratio remains constant from here on. Palantir would need to grow its annual revenue to about $46 billion to support a $1 trillion market cap. Its revenue grew 21% year over year in the most recent quarter. At this rate, Palantir won't hit the $1 trillion mark until 2039.
However, there is a big wild card in play here. Palantir's U.S. commercial revenue — which includes generative AI — grew 70% year-over-year in the fourth quarter of 2023 and 40% in the first quarter of 2024, but its customer base fell 55% and 69%, respectively. % Increased. These figures help explain the rapid, if uneven, adoption of AI.
As mentioned above, when it presented its Q1 results, management raised its forecast for the segment, guiding for growth of at least 45% for the year, and this per It is currently Palantir's biggest driver of growth. Additionally, management has a long track record of issuing conservative guidance. If the company grows average annual earnings that were close to 40%, it could be worth $1 trillion in less than 10 years.
Predictions regarding the potential of generative AI are soaring, but global management consulting firm McKinsey & Company estimates that the market could be worth between $2.6 trillion and $4.4 trillion annually.
If Palantir continues at its current pace and continues to take advantage of AI opportunities, it could reach a $1 trillion market cap sooner rather than later.
John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors. Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of MetaPlatforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Danny Vena has positions in Alphabet, Amazon, Apple, MetaPlatforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, MetaPlatforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a Disclosure Policy.