Palantir has significantly enriched many investors over the past two and a half years.
Palantir Technologies is arguably one of the standout performers during the recent AI boom. To give you a perspective: if someone invested $10,000 into its stock at the start of 2023, that investment would now be worth about $200,000. At this pace, it might not be long before that $10,000 grows to $1 million. But, here’s the question: can investors realistically expect today’s $10,000 in Palantir to balloon to $1 million by the end of 2035? For that to happen, it would need to increase in value a hundredfold over the next decade.
Where will Palantir be in ten years?
Palantir has seen impressive growth, largely due to its Artificial Intelligence Platform (AIP). This platform helps organizations make sense of extensive datasets and derive useful insights. With AI, users can easily interact with their data, leading to the creation of new applications and more efficient decision-making processes.
AIP broadens Palantir’s reach beyond just data scientists and technical experts. It enables businesses to implement Palantir’s software across various functions, even in areas where users might not have deep technical knowledge. Consequently, Palantir has reported robust growth, especially among its commercial customers in the U.S., with commercial revenue soaring by 71% year-over-year.
Looking ahead, management anticipates revenues to hit between $3.89 billion and $3.9 billion by 2025, indicating an annual growth rate of about 36%, up from 29% the previous year. This growth may even accelerate further, given the rapidly expanding commercial revenue that is becoming a more significant part of their overall business.
If Palantir can sustain an average revenue growth rate of 35% until 2035, it could exceed $75 billion in annual revenues by then. Given the high profit margins typical of Software as a Service (SaaS) models, it could potentially become highly profitable. For example, larger SaaS companies like Salesforce often have operating profit margins over 20% with annual revenues near $38 billion. Therefore, it’s reasonable to speculate that a company twice the size of Salesforce might achieve a 25% or 30% operating margin. This means Palantir could generate over $2 billion in operating profits by 2035 if it stays on its current growth path.
While these projections are optimistic, they aren’t outside the realm of possibility for Palantir. Still, that assumes a very bullish perspective.
Is it enough to increase your investment to $1 million?
To turn $10,000 into $1 million, Palantir would need to increase its valuation by one hundred times. Currently valued around $300 billion, it needs to reach $30 trillion by 2035. The most valuable companies today sit at about $3 trillion, making that $30 trillion figure seem quite lofty.
Diving deeper into Palantir’s current valuation, its stock trades at a price-to-sales ratio exceeding 100. Even when looking ahead, that figure is still over 75 times the expected sales. Similarly, the EBITDA multiple is quite high as well, estimating around 160 times. In contrast, Salesforce trades at roughly 7.5 times sales and about 25 times EBITDA.
Maintaining such a high valuation as the company grows seems unlikely. The stock already reflects heightened expectations. For instance, when the management raised its annual revenue projection earlier this month by just 4 percentage points, the stock took a hit.
Even if Palantir retains an extravagant valuation for years to come, its growth might not suffice to transform $10,000 into $1 million. If its valuation aligns more closely with Salesforce’s, it might just double in value over the next decade, built on relatively optimistic scenarios for the business.
A doubling of the investment in ten years translates to a meager annual return of just 7.2%—on par with the historical average of the S&P 500. That might not be what Palantir investors are hoping for. So, in conclusion, it appears unlikely that Palantir can turn $10,000 into $1 million in the next decade, especially considering its currently high valuation.
