Can Palantir Stock Beat the Market?

Palantir Technologies (NASDAQ: PLTR) stock has been on an incredible run over the past five years. The company's share price has rocketed roughly 547% higher over that stretch. On the other hand, the stock has also seen a big pullback in recent months, connected to concerns that artificial intelligence (AI) and software stocks may be broadly overvalued.

As of this writing, Palantir is down 26% from its peak. Of course, the stock still looks incredibly richly valued by most conventional valuation metrics. The company has a current market capitalization of approximately $349 billion and is valued at roughly 110 times expected forward earnings and 48 times expected forward sales. Can the stock beat the market over the next five-year and 10-year periods?

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Can Palantir still be a massive long-term winner?

While Palantir trades at an enormously growth-dependent valuation, the company has also reliably served up sales and earnings results that have crushed Wall Street's expectations. Palantir's revenue surged 70% higher year over year in the fourth quarter to hit roughly $1.41 billion. Meanwhile, non-GAAP (adjusted) earnings per share soared 79% from the prior-year period to reach $0.25. For comparison, the average Wall Street analyst estimates had targeted per-share earnings of $0.23 on sales of $1.33 billion.

Thanks to soaring demand for its Artificial Intelligence Platform service, revenue among U.S. commercial customers rocketed 137% higher year over year last quarter. Meanwhile, sales to U.S. government customers increased 66% over the prior-year period.

Palantir appears to have strong performance leads with its product portfolios for both public-sector and private-sector customers, and these advantages could allow the company to build long-term moats that wind up being very difficult for competitors to penetrate. The company's roles providing services to U.S. defense agencies and other government departments also provides some buttressing against geopolitical volatility. Few other highly growth-dependent tech stocks offer this defensive characteristic, which helps explain why Palantir commands such a high valuation premium.

Over the next five years, there will probably be periods when Palantir significantly underperforms the broader market. Depending on how market cycles play out, it's possible that the company's stock chart could show big underperformance five years down the line. The company's valuation profile predisposes the stock to face big sell-offs when broader macroeconomic sentiment turns bearish.

That being said, I still like the stock's chances of significantly outperforming the market over the next five years. The demand outlook for the company's services looks very strong, and the business is posting stellar margins that facilitate rapid earnings growth.

Over the next 10 years, I think the company's chances of beating the market are even better. With the company's market-leading AI platform and robust momentum in both the public-sector and private-sector markets, Palantir has a good chance of joining the club of trillion-dollar market capitalization companies over the next decade.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.