Palantir Technologies: Can This Supercharged Artificial Intelligence (AI) Stock Continue Crushing the Stock Market in 2025?

Palantir Technologies (NYSE: PLTR) stock has been in roaring form in 2024 with sizzling gains of 198% as of this writing, and it looks like its red-hot run is here to stay following an impressive set of results for the third quarter of 2024 that were released on Nov. 4.

The company, which is known for providing software platforms to both commercial and government customers, delivered better-than-expected revenue and earnings for Q3. Its guidance was well ahead of what analysts were expecting, and investors pushed the stock up 23% the day after quarterly results were announced.

Let's take a closer look at how Palantir fared in Q3, and determine whether this high-flying tech stock has enough gas in the tank to keep surging higher in 2025.

Palantir Technologies is riding the AI wave

Palantir reported Q3 revenue of $726 million, an increase of 30% from the same period last year. Its adjusted earnings grew at an even faster pace of 43% to $0.10 per share. Both metrics were ahead of analysts projections of $0.09 per share in earnings on revenue of $703.4 million.

What's worth noting here is that Palantir reported relatively slower revenue growth of 17% in the same period last year.

Additionally, Palantir's revenue growth came in at 27% year over year in the second quarter of 2024, so there has been a clear acceleration in Palantir's growth, and artificial intelligence (AI) is a key reason for that. Management made it clear on the latest earnings conference call that the growing demand for AI software has been playing a central role in powering the company's improved growth of late.

That's not surprising as Palantir's Artificial Intelligence Platform (AIP) allows customers to customize and deploy AI models into their operations, enabling them to improve the efficiency of their businesses. Palantir's AIP has gained terrific traction among customers, leading to healthy growth in the company's customer base as well as the size of the deals that it is signing.

Palantir finished the third quarter with 629 customers, an increase of 39% from the same period last year. An important thing to note is that the company landed 104 deals worth at least $1 million last quarter, up from 80 in the same period last year.

Meanwhile, the number of deals valued at $5 million or more increased to 36 from 29 in the year-ago period. Deals valued at $10 million or more increased from 12 to 16 on a year-over-year basis. Thanks to the improvement in Palantir's customer base and the jump in deal values, the company's remaining performance obligations (RPOs) increased a solid 58% to $1.57 billion.

The faster growth in this metric as compared to Palantir's revenue growth bodes well for its future. That's because the RPO refers to the total future value of a company's contracts that are yet to be fulfilled. Investors should note that Palantir's RPO is primarily composed of commercial contracts.

To gauge the true potential of the company's revenue pipeline we need to take a look at its remaining deal value (RDV), a metric that for Palantir considers the "total remaining value of contracts as of the end of the reporting period," including government contracts. Palantir reported a 22% year-over-year increase in RDV last quarter to $4.5 billion, indicating that the company is in a position to maintain its healthy growth rate in the long run because of a solid contract pipeline.

This is the reason why Palantir increased its 2024 revenue forecast to just over $2.8 billion from the earlier expectation of roughly $2.75 billion. The updated guidance would translate into year-over-year growth of nearly 26%, which would be an improvement over its 2023 revenue growth of 17%.

So, it is evident that Palantir is indeed benefiting from the growing need for AI software applications in both commercial and government businesses, but there is one factor that may weigh on the stock in 2025.

Will this factor keep Palantir from flying higher in 2025?

Palantir's remarkable surge in 2024 means that the stock is trading at a very expensive 46 times sales, which is significantly higher than the U.S. technology sector's average of 7.7. The company's price-to-earnings multiple of 255 further reinforces the fact that Palantir is a richly valued stock.

The forward earnings ratio -- using estimates -- of 124 is significantly lower than the trailing multiple and points toward a sharp increase in the company's earnings, but it is still on the higher side when compared to the technology sector's average earnings multiple of nearly 49.

The valuation indicates that Palantir is expected to continue clocking outstanding growth. And it could keep delivering faster growth thanks to the booming market for AI software platforms, a market that's expected to see 40% annual growth through 2028, generating annual revenue of $153 billion at the end of the forecast period.

Another reason why Palantir's rich valuation could be justified is that it is reportedly the top-ranked vendor in the AI software platforms space. This is probably why the company is enjoying robust unit economics, meaning revenue from each customer is growing at a faster pace than costs.

Palantir's operating margin jumped by an impressive 9 percentage points year over year in the third quarter to 38%. Consensus estimates are projecting Palantir's earnings to increase at an impressive annual rate of 59% for the next five years, and the company's forward price/earnings-to-growth ratio (PEG ratio) of 0.42 suggests that it is undervalued with respect to the growth that it is forecast to deliver.

Investors looking to buy a growth stock that's benefiting from the adoption of AI may look past the company's trailing multiples, as the market could reward its outstanding earnings growth with more upside in 2025 and beyond. I think it can continue crushing the market in the new year.

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Harsh Chauhan 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.