Here's What a $10,000 Investment in Palantir Could Be Worth in 10 Years
Key Points
Revenue increased 93% year over year in the latest quarter; however, over the next decade, a more conservative 20% annual growth rate is appropriate.
There will likely be greater competition as the artificial intelligence landscape evolves.
Still, the business has remained sound, with high contracted volumes that should drive growth
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Palantir Technologies (NASDAQ: PLTR) has been one of the most successful artificial intelligence (AI) stocks on the market. It's up more than 1,000% over the past three years, although it's up only a modest 10% year-to-date, roughly in line with the S&P 500.
If you were lucky enough to invest $10,000 in Palantir stock on its first day of trading in 2020, you'd have around $212,000 today. But where could a $10,000 investment today possibly take you?
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Why Palantir is one of the hottest AI stocks
Palantir is different from most other hot AI stocks because it doesn't make any of the parts, like Nvidia or Micron, and it doesn't support the build-out, like CoreWeave or Bloom Energy. Instead, it uses AI to help organizations and businesses unify different databases to detect patterns and make informed decisions.
Palantir's platform gives users an edge over the competition, and it's attracting more and more business as clients see real value. At some point, it's going to become the baseline for working, because it will be hard to compete without it.
It also has a unique working model. It customizes each client's interface based on its unique needs, and either brings in the company's team for a "bootcamp" or, in certain cases, sends its own engineers into a client's business.
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Palantir has several products. Its original platform, Gotham, was created to help defense and law enforcement analyze data, while Foundry does similar things for commercial enterprises. Its Artificial Intelligence Platform (AIP) brings AI models and agents into the operations to pull it all together.
Growth has been spectacular as organizations realize what these kinds of features can do for them. Total revenue increased 93% year over year in the second quarter, driven by a 149% increase in the U.S. commercial business, which now accounts for 81% of the business. It closed 220 deals worth at least $1 million and 73 deals worth at least $10 million, all of which are multiyear contracts that generate annual revenue.
It's also highly profitable. The adjusted operating margin was 62% in the quarter, and earnings per share (EPS) increased from $0.13 to $0.41.
Risks and opportunities
How much higher can it go? The market obviously thinks a lot more, considering how expensive the stock is. It trades at a trailing P/E ratio of 167 and a price-to-sales ratio of 81, making it the most expensive stock in the S&P 500 by that metric.
The contract value is one reason Palantir can support a high valuation. Investors know there's already committed revenue for the future. It has also reported accelerating growth.
Management believes there's a revolution underway, and it's leading the charge in making businesses much more efficient and smarter with its products. That could lead to spectacular growth for a long time.
However, at this kind of valuation, it's susceptible to a decline with any misstep or market concern. That's what happened earlier this year. The market was worried about software-as-a-service stocks in the age of agentic AI, sending the stock down.
So far, Palantir continues to win, and its stock is rising again. But there could be competition, and the landscape could change as AI does. Investors should keep these risks in mind.
Where will $10,000 be in a decade?
Wall Street expects revenue to increase 83% this year and 50% next year. So over 10 years, there's likely to be a big slowdown from today's levels.
Perhaps it can continue to grow at a 20% compound annual growth rate. If so, sales will be about $51 billion in 10 years. It won't have such a high price-to-sales ratio at that rate, so let's assume 25 for this scenario. In that case, market cap would be nearly $1.3 trillion, or nearly three times today's price, and $10,000 would be worth $27,000.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bloom Energy, Micron Technology, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.
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