There’s a lot of hype and excitement around Palantir Technologies (NYSE: PLTR) these days; in just the past 12 months, its shares have surged by 190%. The data analytics company has some promising growth prospects, particularly when it comes to artificial intelligence (AI). Many investors are hopeful that the company can be the next big name in tech. Today, the business is worth around $50 billion. But with so much potential on the horizon, is it possible that this becomes a $1 trillion stock by the end of the decade?
Is the Oracle deal a sign that Palantir is going to get much bigger?
On April 4, Palantir and database giant Oracle announced that they would be joining forces to provide cloud and AI solutions to both businesses and governments. Palantir is going to use Oracle’s cloud infrastructure for its foundry workloads. And its AI platform will also be deployable on Oracle’s cloud network.
Oracle, which has a market cap of around $320 billion, is a much larger tech company, and it can help Palantir potentially reach more customers by working together. By combining Palantir’s advanced analytics solutions with Oracle’s strong and reliable infrastructure, together the companies can provide businesses and government organizations with robust solutions.
Palantir’s profits could surge
Growth is important, but so, too, is profitability. A big reason Palantir’s valuation isn’t higher these days is because the company has only recently become profitable on a consistent basis. But Palantir has been moving in the right direction as margins are improving, and when combined with more revenue growth, the business’ bottom line could look a whole lot stronger in the future.
PLTR Profit Margin (Quarterly) data by YCharts
In the company’s most recent quarter, for the last three months of 2023, revenue totaling $608.4 million rose at a rate of 20% year over year. And Palantir projects that for the first quarter of 2024 (its earnings come out next week), the top line will come in between $612 million and $616 million as it continues to grow its business.
Today, Palantir’s stock still looks expensive, trading at a whopping 250 times its trailing earnings. But if the company can continue growing its top line while maintaining a strong profit margin, that multiple will come down, making the stock a more tenable investment.
Could Palantir be worth $1 trillion by 2030?
To see where Palantir’s valuation may be by 2030, it’s important to understand what its bottom line may look like at that point. Let’s suppose that its margins continue to improve and that by 2030, Palantir’s profit margin is at around 20%. And let’s be a bit bullish and assume that its AI platform will draw in a lot of customers and that the company’s top line will grow at an annual growth rate of 25% until then. Right now, Palantir is only expecting its revenue to rise by around 20% for the current year.
Based on those assumptions, by the end of 2030, Palantir’s revenue could come in at around $10.6 billion per year. Assuming a 20% profit margin would mean that its per-year earnings would be around $2.1 billion by then. And assuming the company has roughly 2 billion shares outstanding at the time, its earnings per share would be approximately $1.05.
If investors are willing to pay a multiple of 50 times earnings, having a bullish outlook on Palantir’s future, the tech stock could command a price of around $53. That would imply a 130% increase in its current price, which would put its valuation at around $107 billion.
While that that would be a great return for investors, it would be far shy of $1 trillion. Unless the company’s growth rate drastically takes off between now and then or investors are paying an extremely high multiple for the business, it’s unlikely that Palantir’s stock will hit $1 trillion by the end of the decade.
Should you invest in Palantir’s stock?
Even if Palantir doesn’t hit the $1 trillion mark anytime soon, it can still be a good investment to buy and hold. The company is still growing its business at a high rate, its margins are improving, and its overall trajectory looks promising with AI becoming more of a focus for companies.
Investors, however, should be prepared to hang on for the long term because Palantir’s near-term gains could be limited given its already high valuation.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle and Palantir Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
