Last month, leading big data analytics provider Palantir ( PLTR -2.04%) posted another standout quarter, continuing to impress investors with its rapid expansion that began in mid-2023. That surge began after Palantir launched its Artificial Intelligence Platform (AIP), which integrates third-party large language models (LLMs) into its core Foundry and Gotham products. Since that launch, Palantir’s growth rate has quickened, and its profits have moved from just breaking even to strongly positive:
PLTR Revenue (Quarterly) data by YCharts . EBIT = earnings before interest and taxes.
However, after this streak of strong results, Palantir’s valuation has soared to extraordinary heights. At present, the stock trades at 522 times current earnings, 184 times projected 2026 profits, and an eye-popping 115 times sales.
That’s an extremely aggressive valuation. The big question now: can Palantir sustain its revenue and earnings growth over the next five years, enough to justify today’s lofty price?
What makes Palantir unique
Palantir went public in September 2020, but its roots go back 17 years as a data platform originally designed to help U.S. government agencies track terrorists during the War on Terror. Its technology has always been focused on extracting meaningful information from massive datasets—essentially, “finding needles in haystacks.” In recent years, Palantir has brought these strengths to the private sector, fueling much of its recent momentum.
The foundation of Palantir’s technology is its ontology system, which builds a digital blueprint of an enterprise. Ontology breaks down a company into objects, relationships, and workflows, creating a flexible structure that can be tailored to each organization’s specifics.
In its annual filing, Palantir highlighted its focus on tackling complex, labor-intensive data challenges that other software companies often avoid or fail to address. Most competitors build generic solutions intended for mass deployment across many businesses. Palantir, in contrast, works closely with each customer, customizing its offerings to meet their distinct requirements. More recently, Palantir has rolled out industry-specific operating systems, providing some standardization within each sector.
Palantir’s competitive edge is clear
It may be difficult for those without a technical background to fully assess Palantir’s competitive moat relative to other enterprise software firms, but the company’s rapid growth and robust margins suggest it brings something truly valuable to the table.
In the most recent quarter, revenue jumped 48%, with U.S. revenue climbing 68% and U.S. commercial sales soaring 93%. Government contracts, too, rose 53%, even as government agencies have been aiming to cut costs. Margins improved as well: GAAP operating margins increased from 16% to 27%, while adjusted (non-GAAP) operating margins—which exclude stock-based compensation and other factors—rose from 37% to 46%.
This explains why Palantir commands such a premium price. The company isn’t just growing quickly; it’s also expanding its margins, indicating it doesn’t need to increase spending at the same pace as revenue—likely a sign of strong pricing power or overwhelming demand that requires little promotional effort.
The combination of accelerating top-line growth and nearly 10 percentage points of margin improvement positions Palantir as a potential long-term compounding winner.
Image source: Getty Images.
Is the stock overpriced?
During the latest analyst call, CEO Alex Karp made an intriguing remark, suggesting that Palantir’s U.S. revenue could potentially grow by a factor of ten in the next five years.
It’s unclear whether Karp was referring to total U.S. revenue, which would include government contracts, or just commercial sales. Based on the context, he likely meant commercial revenue.
Is achieving a tenfold increase in U.S. commercial revenue possible? Over a five-year period, this would require a compound annual growth rate of about 58%. In the most recent quarter, the growth rate was 93%. Although maintaining such rapid expansion becomes more difficult as the company scales, Karp’s target isn’t entirely out of reach.
Last quarter, Palantir’s U.S. commercial revenue reached $306 million, or approximately $1.2 billion annualized. A 10x increase would put this figure at $12 billion by the end of 2030, just for U.S. commercial operations.
Meanwhile, U.S. government revenue was $426 million last quarter, annualizing to around $1.7 billion—a 53% year-over-year rise. The international segment brought in $267 million, translating to a little over $1.05 billion annually.
If we assume that U.S. commercial revenue grows ten times, U.S. government income triples to $5 billion, and international sales—growing more modestly—double to $2 billion, then Palantir could approach $20 billion in total revenue within five years, provided Karp’s U.S. commercial forecast is realized.
The caveat
The downside is even if net margins expand to an ambitious 50%—noting that even Microsoft currently posts net margins of just 35.6%—Palantir would generate only about $10 billion in net income under this optimistic scenario. Yet the company’s market capitalization already stands at $367 billion.
That means the stock is trading at around 37 times a highly optimistic earnings scenario, which assumes not only exceptional future growth but also a significant boost in profitability, far beyond where peers like Microsoft are today. Keep in mind as well the impact of the time value of money—five years is a significant period.
In summary, while Palantir’s impressive growth has made remarkable profit expansion a reality for the foreseeable future, the market appears to have already priced in this best-case scenario, and then some.
That said, Palantir’s uniqueness could allow it to find new growth opportunities, or it might continue to raise prices if its ontological software becomes essential to U.S. businesses. As a result, investors should keep Palantir on their radar and consider buying if its valuation becomes more reasonable after a pullback.
