Will Palantir Technologies Be a Trillion Dollar Stock by 2035?

By | February 24, 2024

What is the most exclusive club on Wall Street? I’d say it’s the trillion-dollar club, a group of six stocks, each with a valuation of more than $1 trillion: Microsoft, Apple, Nvidia, Alphabet, AmazonAnd Meta Platforms.

By 2035, the club is likely to expand significantly, with companies across a wide range of industries crossing the $1 trillion mark. So let’s explore one that has the potential to reach a $1 trillion valuation by 2035: Palantir Technologies (NYSE:PLTR).

Hand hovers over a holographic stock chart.Hand hovers over a holographic stock chart.

Image source: Getty Images.

How Palantir is doing today

To figure out how much Palantir’s valuation could go, let’s start with how big it is now. At the time of writing, Palantir has a market cap of $51.6 billion. The company is the 350th largest American company.

Needless to say, Palantir still has a long way to go if it wants to crack the $1 trillion club. The company should grow almost 2,000% or 20x by 2035. That equates to a compound annual growth rate (CAGR) of about 32%. Interestingly, Palantir has generated a CAGR of 31% since its debut via an initial public offering (IPO) in 2020.

Such a level of growth may seem unattainable in the longer term. After all, if you look at a benchmark index, such as the S&P500, the overall CAGR return over its lifetime, which extends over 70 years, is only 10%. Even if you opt for shorter, more bullish periods, the S&P 500’s CAGR improves but still remains well below 30%.

For example, between March 2009 and today – generally a very bullish period in the stock market – the S&P 500’s CAGR is only 16%.

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^SPX chart

^SPX data by YCharts

However, the S&P 500, like all stock indices, has less volatility than individual stocks. Examining the stocks one by one, it becomes clear that achieving and maintaining a 30% CAGR is possible.

As you can see in the diagram below, Advanced Micro Devices,Microsoft, and Tesla all achieved a CAGR equal to or greater than 28% over the past ten years. For example, AMD has a 10-year CAGR of 46%. Much of these high growth rates stem from the ever-growing demand for artificial intelligence (AI). However, Adobe And Sales team (companies more similar to Palantir due to their software-centric business models) have achieved lower CAGRs of 23% and 16%, respectively. While that doesn’t mean Palantir can’t reach $1 trillion by 2035, it’s worth noting that a 30% CAGR is difficult to achieve and maintain – even for high-performing companies.

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AMD Total Efficiency Level Chart

Can Palantir’s Business Support a $1 Trillion Valuation?

First of all: what does Palantir do?

In short, the company builds software platforms that allow customers to interact with their own data and achieve practical efficiencies. More organizations than ever need these types of services, given the amount of data they generate every day.

Take, for example, the United Kingdom’s National Health Service (NHS). It is a massive system serving more than 56 million people in total, with nearly 1.6 million patient interactions per day. Each of these interactions results in new data that must be captured, making on-the-spot analysis difficult. Administrators instead rely on top-down after-the-fact analysis, which is costly and often yields little real-time improvement.

Yet the NHS has achieved impressive results using Palantir’s software. For example, the inpatient waiting list at two London hospitals fell by 28% after the introduction of Palantir’s software. In addition, the occupancy rate of the operating rooms increased by 5.7%.

As Palantir leverages AI to power its software programs, there are more opportunities for its customer base to grow. However, only time will tell how exactly that growth will take shape over the next ten years.

Will Palantir reach $1 trillion by 2035?

Despite the solid business model and popular software, It won’t be easy for Palantir to cross the $1 trillion mark by 2035.

The company must continue to grow its revenue and customer base. As of the most recent quarter (the three months ending December 31, 2023), Palantir grew its commercial revenue 32% year over year. Similarly, the number of commercial customers increased by 55% from a year earlier. These gains in the commercial business, rather than the government-focused segment where growth is slower, could support a 30% CAGR for the company. Furthermore, it is possible that Palantir’s growth rates will accelerate as demand for AI-powered tools and big data analytics continues to increase.

However, I’m not optimistic that the company will reach a $1 trillion valuation in less than eleven years. While I still think Palantir is a great company and a solid investment, I don’t think it has what it takes to cross the very high threshold of $1 trillion by 2035. It would require consistent levels of explosive growth, which would be unrealistic for most companies.

Either way, for long-term buy-and-hold investors, Palantir remains a stock worth considering.

Should You Invest $1,000 in Palantir Technologies Now?

Consider the following before purchasing shares in Palantir Technologies:

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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jake Lerch has positions at Adobe, Alphabet, Amazon, Nvidia and Tesla. The Motley Fool holds positions in and recommends Adobe, Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Salesforce, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.

Will Palantir Technologies Be a Trillion Dollar Stock by 2035? was originally published by The Motley Fool

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