Is Palantir Stock a Long-Term Buy?

One of the most divisive stocks in the market today is undoubtedly Palantir Technologies (NASDAQ: PLTR). The company has seen tremendous revenue growth, but with that has come a valuation that has been pushed into the stratosphere. Let's take a closer look at this artificial intelligence (AI) leader to see if the stock is a long-term buy.

From fighting terrorism to becoming an AI operating system

Palantir started out as the brainchild of former PayPal co-founder Peter Thiel, who believed he could deploy technology similar to that used by PayPal for fraud detection and apply it to help fight terrorism after 9/11. The company's first successful platform was Gotham, which was able to gather data from a wide range of sources and identify patterns and potential threats.

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The platform grew to become a go-to source for mission-critical tasks within the government, including counterterrorism and tracking COVID-19 cases during the pandemic. Today, Palantir's technology has evolved to be a key source of military and defense intelligence, including being used in battlefield operations.

While the U.S. government remains Palantir's largest customer and continues to grow swiftly, it has been the company's transition to the commercial space that has been its biggest growth driver. Out of Gotham, the company developed Foundry for the commercial space, which, when combined with its Artificial Intelligence Platform (AIP), has become an AI operating system that lets its customers better harness the power of third-party large language models (LLMs) to help solve real-world problems.

It does this by gathering an organization's data from a wide variety of sources and then structuring it into an ontology that it links to a company's business processes and physical assets. This clean, structured set of data is then ready to be used to help solve a wide array of problems across industries, with the potential for AI hallucinations greatly reduced since LLMs must operate within the logics and constraints provided by AIP.

Palantir's business growth is only just starting

The success of Foundry AIP has helped Palantir produce 10 straight quarters of revenue growth acceleration, culminating in 70% revenue growth last quarter. The company is both quickly adding new customers and seeing existing ones quickly expand. Given the breadth of use cases for AIP, Palantir has a very long runway of growth still in front of it.

Given its position in the AI landscape, I think Palantir can grow to eventually become one of the largest companies on the planet. Companies that control operating systems -- such as Apple (iOS), Alphabet (Android), and Microsoft (Windows) -- tend to become massive over time, and Palantir's potential as the leading AI operating system is just enormous. That said, I think the stock's valuation (a forward price-to-sales multiple of 51.5 times) likely caps its upside over the next few years as it grows into its current valuation.

Geoffrey Seiler has positions in Alphabet and PayPal. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, Palantir Technologies, and PayPal and is short shares of Apple. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2026 $65 calls on PayPal. The Motley Fool has a disclosure policy.