Prediction: Palantir Will Beat the Market. Here's Why.

Palantir Technologies (NASDAQ: PLTR) already delivered explosive earnings and stock price performances to investors last year. The company's quarterly revenue soared in the double digits, profit reached records, and the stock jumped 340% for the best performance in the S&P 500 (SNPINDEX: ^GSPC).

The company reached key milestones too, such as joining that major benchmark, as well as winning a spot in the Nasdaq-100.

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All of this is thanks to a solid software business built up over 20 years, and in recent times, the company's harnessing of the power of artificial intelligence (AI) to supercharge growth. AI demand may very well be in its early stages -- signaling a lot more growth for Palantir ahead -- but the stock's meteoric rise prompted some analysts and investors to wonder if it was ripe for a pause. Wall Street has been cautious, with the average 12-month price forecast calling for a 29% decline in the stock from the closing price on Feb. 3.

But I think this top stock, even after last year's gain, may just be getting started. My prediction is that Palantir will beat the market. Here's why.

Image source: Getty Images.

Palantir's recent wave of growth

First, here's a quick summary of the Palantir path so far. As mentioned, the company has been around for a number of years -- but growth strongly accelerated in recent times thanks to all the work Palantir accomplished throughout its history, as well as key technology developments like AI that have driven a whole new wave of demand for its systems.

Palantir makes software that helps customers aggregate their data and make better use of it. While this may sound mundane, it actually is just the opposite. Palantir's software can play a crucial role in a government or a company's operations -- resulting in game-changing decisions, new strategies, and more.

For example, Palantir is working with a multinational bank to automate back office tasks -- and what took five days now takes only a few minutes. Another example: Rio Tinto, which recently extended its contract with Palantir, said Palantir's Artificial Intelligence Platform (AIP) is helping the metals and mining giant leverage its unstructured data -- as a result, Rio Tinto now can handle problems that before seemed too complicated.

In its early days, Palantir was most associated with government contracts, but in recent years and thanks to the AI boom, commercial players have rushed to the company -- especially for AIP, a product released in 2023. AIP, an AI-driven approach applying large language models directly to a specific company's data and needs, has helped customers go from zero to an important use case in just a few hours. Palantir holds AIP boot camps so that potential customers can test the system out, which has fueled contract growth.

Palantir's biggest opportunity right now

Now, let's return to my prediction. All of this sounds great -- but why do I think that now, moving forward, Palantir will continue to beat the market?

Many factors may boost Palantir in the months to come, but I see the commercial customer as the biggest growth driver. Palantir allows these customers to almost effortlessly apply AI to their businesses and see enormous results that could be transformative in the near and long term.

So, thanks to Palantir, companies and organizations can quickly apply AI to their needs -- and win. And here, Palantir is seeing tremendous momentum, with U.S. commercial revenue soaring 64% to $214 million in the fourth quarter of last year, and U.S. commercial remaining deal value surging 99% to $1.79 billion. Palantir reported the figures early this week. U.S. commercial customer count also demonstrates this momentum, with 73% growth in the quarter year over year.

Plenty of room for growth ahead

Importantly, Palantir clearly is in the early days of this growth story. U.S. commercial customers today total 382, leaving plenty of room for growth -- and Palantir says it sees "significant expansion opportunities" within the current commercial customer base.

On top of this, today's $200 billion AI market is forecast to reach beyond $1 trillion by the end of the decade -- in this environment, it's likely demand from commercial customers, who don't want to be left behind in this AI revolution, will remain high.

All this makes me confident about my prediction that Palantir will beat the market, potentially in the coming months and over the long term, as its commercial customer growth story unfolds.

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Adria Cimino 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.