What can be anticipated about Palantir's share price over the next two years?
Palantir Technologies (PLTR dropping 2.01%) saw an extraordinary surge in 2024, recording astounding gains of 340%, surpassing the 23% growth registered by the Nasdaq Composite index throughout the year.
This tech company, renowned for providing software platforms and analytics to both public and private sectors, has been drawing attention due to the burgeoning demand for its advanced artificial intelligence (AI) software. This platform enables clients to seamlessly incorporate generative AI into their operations, contributing significantly to Palantir's recent growth momentum.
Let's delve into Palantir's long-term growth drivers and estimate if this AI stock can sustain its remarkable ascent over the next few years.
Palantir riding a massive growth wave
AI software platforms empower organizations and governments to develop, test, launch, and manage AI applications in the cloud. In the last couple of years, demand for these platforms has witnessed a significant rise as businesses strive to optimize their operations by integrating generative AI into their operations.
Palantir was ranked among the top 5 AI software platform providers in 2023 by market research firm IDC, alongside heavyweights such as Microsoft, Alphabet's Google, and Amazon. Remarkably, Palantir has managed to carve out a niche in the competitive AI software platforms market despite the presence of tech giants with deep pockets and well-established cloud infrastructures.
This is clearly depicted in Palantir's 2024 financial results. In the first quarter of 2024, Palantir's revenue grew 21% year over year, followed by a 27% increase in Q2. The company reported a 30% year-over-year revenue increase in the third quarter of 2024, reaching $726 million. Over the first nine months of 2024, Palantir's revenue reached over $2 billion, representing an almost 27% increase from the same period in 2023.
This represents a significant improvement compared to the 15% year-over-year revenue growth Palantir achieved in the first nine months of 2023. A key reason for Palantir's accelerated growth in 2024 is its aggressive go-to-market strategy, which focuses on landing clients for its Artificial Intelligence Platform (AIP). Palantir held "boot camps" in 2023, providing clients with a five-day interactive tutorial on integrating generative AI into their operations.
In 2024, Palantir increased the number of boot camps, conducting an average of approximately five per day. As a result, the boot camps contributed to a substantial expansion in Palantir's customer base, with a 39% year-over-year increase in commercial customers in the third quarter of 2024.
For comparison, Palantir's overall customer count increased 34% year over year in Q3 2023, while its commercial customer count saw a 45% increase. So, Palantir's AIP bootcamps have catalyzed customer growth, but that's not the only positive development. Customers acquired through the boot camps have been signing increasingly larger deals with Palantir following their initial agreement, as highlighted by management during the November 2024 earnings conference call.
This is why Palantir's total contract value (TCV) increased by 33% year over year in Q3 2024, exceeding its actual revenue growth. This metric refers to the total potential lifetime value of contracts signed with, or awarded to, Palantir at the time of contract execution, suggesting an improvement in its revenue pipeline.
Furthermore, Palantir's net dollar retention rate increased by 11 percentage points year over year to 118% in the last reported quarter. This indicates an uptick in client spending, as this metric represents the trailing-12-month revenue from Palantir's customers in a quarter compared to the trailing-12-month revenue from these same clients in the prior year.
As a result, Palantir has reported substantial gains in its margins over the past year.
Can Palantir continue to soar over the next 3 years?
Palantir is operating in a market that's still in its early stages of growth. According to IDC, the AI software platforms market was valued at approximately $28 billion in 2023. This figure is projected to surge to $153 billion by 2028, growing at a remarkable compound annual growth rate of 40.6%. Therefore, there's a strong likelihood that Palantir's growth will persist in the coming three years, which may explain the recent increase in Palantir's growth projections.
However, one potential hurdle that might hinder Palantir from delivering further gains is its valuation. With a price-to-earnings ratio of 400, Palantir is somewhat overvalued. However, the forward earnings multiple of 154 suggests a considerable increase in Palantir's earnings for 2024, attributed to its 52% earnings growth for 2024.
Experts predict a potentially less rapid revenue expansion for Palantir in the years 2025 and 2026. Nevertheless, considering the burgeoning sector of AI software platforms and Palantir's expanding clientele base, there's a solid likelihood of the company surpassing these expectations. Consequently, the prospect of further upward momentum can't be disregarded.
Thus, investors with a growth-focused strategy might want to maintain their positions in Palantir, as this tech stock might yet have potential for further upward trajectory.
Given Palantir's impressive 340% growth in 2024, some investors may be interested in exploring opportunities for further financial gains. This could involve looking into the company's long-term investment strategies in the field of AI and finance.
In light of the rapidly growing AI software platforms market, projected to reach $153 billion by 2028, Palantir's position as a top 5 provider could make it an attractive option for investors looking to capitalize on this trend. However, with a high price-to-earnings ratio, careful consideration should be given to potential risks and the company's potential for continued earnings growth.
