Is Palantir Still a Millionaire-Maker Stock?

Palantir (NASDAQ: PLTR) has minted many millionaires during the past three years. The artificial intelligence (AI) software company hovered near penny-stock territory in 2023 and is currently valued at about $125 per share. It used to trade for more than $200 per share at its all-time high, showing how much the stock has gained in recent years.

However, some investors may be concerned that most of the gains are in the past. The millionaire-maker stocks of yesterday aren't always the millionaire-makers of today. Palantir has some compelling fundamentals that suggest it can flip the script, but there are some meaningful hurdles new investors face.

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Fundamental growth has been impressive

Palantir operates a great business model that produces rising revenue and profit. Having the key metrics go up each quarter is the hallmark of stocks that steadily gain value over the long run. The first quarter featured 85% year-over-year revenue growth, with U.S. revenue more than doubling year over year.

That's an important detail because most of Palantir's revenue comes from the U.S. government and businesses. The fact that U.S. revenue growth is outpacing overall revenue growth means that a rising U.S. segment will lift up the entire business in a meaningful way.

Palantir locks in long-term contracts, which result in high annual recurring revenue. Its AI platform is critical for governments and enterprises that use artificial intelligence to analyze and interpret data. It also lets companies create AI agents to perform various tasks autonomously.

More than 200 of its Q1 deals exceeded $1 million in value, with 47 of those deals being worth more than $10 million. Investors are bullish about Q2 earnings, which will come out in August, with company forecasts suggesting a sequential revenue jump.

The valuation leaves little room for error

Even the bears will acknowledge that Palantir has a great business model, but at what price? This is the question that deflates some bullish narratives as the focus shifts from a rising business to a 138 price-to-earnings (P/E) ratio.

Net income more than quadrupled year over year in the first quarter, so it's possible that continued profit margin expansion could make the valuation more reasonable. Palantir wrapped up the quarter with a net profit margin just above 50%, and if the company can continue to maintain high top-line growth, its profit has more room to expand.

Full-year projections suggest that Palantir will maintain high revenue growth. A subscription model and strong customer relations with the largest governments and enterprises suggest that revenue growth can remain elevated beyond 2026. Still, the P/E ratio leaves little room for error.

Value investors may be concerned, but the recent dip has made the stock more attractive for growth investors who can wait a few years before selling their shares. It was only a few months ago when Palantir had a 600 P/E ratio, so a 138 P/E ratio looks more reasonable in comparison.

It's not turning $20,000 into $1 million

If you're looking for a stock that can make you a millionaire, two things matter beyond a stock's fundamentals: the stock's market cap and how much you can invest.

Some stocks can turn $20,000 into $1 million within a few years, but they are extremely rare. Sandisk (NASDAQ: SNDK) achieved the feat last year before entering a correction, and while some stocks can do that in a few years, it is extremely rare. However, in most of those cases, it's a stock with a relatively small market cap that gets the job done.

If you can put only $20,000 into Palantir, it's not going to become a $1 million position. That would require a 50-fold return, and that performance would turn a $315 billion market cap into a $15.75 trillion market cap. Palantir isn't going to become more valuable than Nvidia (NASDAQ: NVDA), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Meta Platforms (NASDAQ: META) combined, so investors shouldn't count on that kind of return.

Palantir, however, does have a realistic shot at a $1 trillion valuation, which would imply more than a threefold return. That may not be enough for most people to turn Palantir into a millionaire-maker position, but portfolio diversification and time can eventually move you toward the seven-figure milestone.

Marc Guberti has positions in Apple. The Motley Fool has positions in and recommends Apple, Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.