Where Will Palantir Technologies Be in 5 Years?

Palantir Technologies (NASDAQ: PLTR) stock is off to a remarkable start in 2025, rising more than 54% as of this writing on account of the company's accelerating growth and fast-improving revenue pipeline that points toward a bright future.

The software specialist has established itself as a key player in the artificial intelligence (AI) space. Palantir's Artificial Intelligence Platform (AIP), which helps customers integrate generative AI capabilities into their operations, has become a runaway hit. This is evident from the company's rapidly growing customer base as well as a jump in spending by existing customers on its offerings.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Given that Palantir is tapping a market that's just taking off, it won't be surprising to see the company sustaining its impressive growth over the long run. Let's take a closer look at Palantir's prospects and check if it is still worth buying the stock in anticipation of more upside over the next five years.

The AI software market could help Palantir deliver remarkable growth

The demand for AI software is set to rise remarkably through 2030 as more businesses and organizations are likely to adopt this technology to drive efficiency gains and improve productivity. According to one estimate, global spending on AI software could jump nearly fourfold between 2024 and 2030, generating annual revenue of more than $391 billion by the end of the decade.

Palantir finished 2024 with revenue of $2.87 billion, an increase of 29% from the prior year. Its revenue growth rate picked up last year as compared to the 17% increase in its top line in 2023 as more customers started using AIP. Palantir ended 2024 with 711 customers, an increase of 43% from the prior year.

More importantly, the company seems to be building a high-quality customer base as its existing customers ramp up their spending on Palantir's offerings. This is evident from the 12-percentage-point increase in its net dollar retention rate in the fourth quarter of 2024 to 120%. Palantir calculates the net dollar retention rate by dividing the trailing 12-month revenue from its customers at the end of a quarter by the trailing 12-month revenue from those same customers in the year-ago quarter. So, a reading of more than 100% means that Palantir's existing customers are spending more on its solutions.

Palantir management pointed out on the latest earnings conference call that AIP is one of its key growth drivers:

AIP continues to fuel new customer acquisition as we have nearly five times the number of U.S. commercial customers as we did three years ago and significant expansion opportunities at existing customers.

Palantir presented many examples on the earnings call about how customers using AIP have significantly improved the efficiency of their operations. As a result, it won't be surprising to see more customers adopting this platform, while existing customers could sign bigger deals with Palantir as they deploy AI into more areas.

What's worth noting is that Palantir's total contract value (TCV) shot up an impressive 56% year over year in the fourth quarter of 2024 to $1.8 billion, significantly outpacing the 29% jump in its top line. Another metric that shows Palantir is setting itself up for long-term success is its remaining deal value (RDV), which is the total remaining value of contracts that the company is yet to fulfill at the end of a quarter.

This metric jumped 40% from the year-ago period to $5.4 billion. Palantir's RDV is well above the revenue that it generated last year, suggesting that the company's growth is likely to pick up pace in 2025 and in the long run. Moreover, as Palantir is getting more business from its existing customer base, it is ideally spending less money to acquire new revenue. This is translating into robust growth in its margins and earnings.

For instance, Palantir's adjusted operating income jumped by 11 percentage points in 2024. As a result, its bottom line shot up an impressive 64% to $0.41 per share last year. Analysts expect strong growth in Palantir's earnings for the next couple of years as well.

Data by YCharts.

The discussion above indicates that Palantir may be able to outpace Wall Street's earnings expectations over the next five years as the spending on AI software accelerates. That could help the stock deliver more upside, though there is one major challenge for anyone looking to invest in Palantir right now.

The sky-high valuation makes buying the stock a risky bet right now

Palantir stock trades at a massive premium following its incredible rally in the past year. It trades at more than 102 times sales and has a trailing price-to-earnings ratio of 633. There is no doubt that Palantir is on track to make the most of the massive opportunity in the AI software market. Its numbers are proof that it is indeed gaining ground in this space, but the valuation seems a bit detached from reality.

The only way Palantir can justify this valuation is by regularly outperforming consensus expectations and displaying further acceleration in its growth. The good part is that Palantir does seem capable of doing that given the pace of its customer additions and an increase in the size of contracts that it is signing, all of which have helped it build a terrific revenue pipeline and contribute toward healthy unit economics.

Also, the company seems set to grow at a faster pace than the AI software market over the next five years, considering the jump in its RDV last quarter and its position as one of the leading sellers of AI software platforms. All this could translate into more upside in Palantir stock in the long run, but investors who are looking to buy the stock would do well to assess their risk profile as its sky-high valuation opens up the possibility of a sharp dip in the stock price in case any cracks appear in its growth story.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $340,048!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,908!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $554,019!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Learn more »

*Stock Advisor returns as of February 3, 2025

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.