Palantir Technologies Shines as AI Demand Fuels Growth

Palantir Technologies (NASDAQ: PLTR) was the top-performing stock in the S&P 500 (SNPINDEX: ^GSPC) in 2024, continuing this trend into 2025. This week, the company revealed impressive fourth-quarter financial results, primarily due to robust demand for its artificial intelligence platform.

Following the announcement, Palantir’s stock surged over 20%, boosting its market value to $230 billion. Analyst Dan Ives from Wedbush Securities believes this figure could escalate significantly, stating that Palantir might reach a trillion-dollar valuation within two to three years. Such a projection suggests a potential increase of 335% from its current market cap.

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Here’s a closer look at Palantir.

Palantir: A Leader in AI Software Development

Palantir specializes in data analytics, offering core products like Foundry and Gotham. These tools allow clients to integrate complex information and develop machine learning (ML) models. A key feature of their software is the ontology framework, which connects digital data to real-world objects and defines their relationships.

Clients can utilize ontology data with analytics applications to gain insights that enhance decision-making. For example, a bank using Foundry to manage accounts across branches can query its data with ML models designed to detect fraudulent transactions and other financial crimes.

In 2023, Palantir launched AIP, an innovative AI platform that brings support for large language models to Foundry and Gotham, allowing users to interact conversationally with the software. As in the previous bank example, users can enter simple text commands to prompt Foundry to handle issues, such as freezing accounts suspected of money laundering.

Recently, International Data Corporation (IDC) acknowledged Palantir as the market leader in decision intelligence software. Additionally, Forrester Research named the company a technology leader in the AI/ML space, with AIP receiving higher scores compared to similar offerings from Alphabet, Amazon, and Microsoft. Analyst Mike Gualtieri remarked, “Palantir is quietly becoming one of the largest players in this market.”

Looking forward, IDC projects that AI platform sales will grow by 40% each year, reaching $153 billion by 2028. Currently, Palantir holds a revenue share ranking just behind Microsoft, but its rapid growth may change this picture. Dan Ives recently asserted to Yahoo Finance that no other company offers a product comparable to AIP.

Image source: Getty Images.

Wall Street’s Misjudgments on Palantir

Palantir delivered outstanding fourth-quarter results, surpassing estimates in both revenue and earnings. The customer base grew by 43% to 711, while existing customers increased their spending by an average of 20%. Consequently, sales climbed 36% to $828 million, marking the sixth consecutive quarterly increase. Non-GAAP earnings soared 75% to $0.14 per diluted share.

Palantir’s profits have now outperformed expectations for six quarters in a row, with actual earnings beating consensus estimates by an average of 13%. Historically, Wall Street analysts have significantly underappreciated the company’s potential. However, this conventional wisdom might be shifting.

Mark Giarelli at Morningstar recently noted, “Palantir’s exceptional fourth-quarter results, coupled with rapid growth in the AI sector and its strategic position within the AI-value chain, strengthen our belief that this company can emerge as a major force in software.”

Concerns Over Palantir’s Current Stock Valuation

After Palantir’s notable performance in the fourth quarter, many analysts have increased their earnings projections and fair value estimates. Currently, the average target price for the stock stands at $81 per share, nearly double what it was just a month ago and almost triple the figure from three months back, according to data from LSEG.

Moreover, earnings are expected to rise by 37% in 2025, outpacing earlier forecasts. Despite this positive outlook, the stock’s current valuation at 240 times adjusted earnings remains high. Investors should exercise caution before pursuing shares at the present price.

The bottom line is this: while I agree with Dan Ives that Palantir may become a trillion-dollar company, achieving this goal within the next two or three years seems unlikely. A timeframe of around a decade appears more reasonable. Investors might find better buying opportunities in the future, but those interested in owning shares can consider starting with a small position today, as long as they can handle potential volatility.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.