Finance
1 unstoppable stock that could join Microsoft, Apple, Nvidia, Alphabet, Amazon and Meta in the $1 trillion club
The paradigm shift represented by advances in artificial intelligence (AI) has had a profound impact on the market since early last year. The speed at which the big players in AI have climbed the ranks of the world’s most valuable companies is breathtaking.
Apple has achieved the number 1 position Microsoft, but at the time of writing both have a market cap of over $3.3 trillion. If Nvidia‘s GPUs clearly became the hardware of choice for handling AI workloads, the chipmaker rose to surpass $3 trillion in value, and after a brief moment in the top spot, holds the third position. Alphabet, AmazonAnd Metaplatforms – each of which are leaders in the AI revolution – have a market capitalization of $2.2 trillion, $2 trillion and $1.2 trillion respectively.
Although it is currently a Market capitalization of just $58 billion, it is not an exaggeration to suggest that Palantir Technologies (NYSE:PLTR) makes a strong candidate for future membership in a $1 trillion club. Investors only need to see the speed at which generative AI is being adopted to understand the scale of the opportunity Palantir is looking to capture.
Decades of AI experience
Palantir only came to the attention of AI investors in the past year, but the company has a long and impressive track record in developing AI tools. The original business focus was on helping the various agencies in the U.S. intelligence community connect their legacy databases, share and analyze information, with the goal of allowing them to discover potential terrorist plots more effectively.
The company has since expanded its offerings, first to other government and law enforcement agencies and then to enterprises, providing AI-based data mining tools that help management make data-driven decisions. Palantir’s vast experience with AI allowed the company to quickly develop additional useful solutions as generative AI matured early last year.
The company’s Artificial Intelligence Platform (AIP) is the result of these efforts. Palantir also developed a unique go-to-market approach that has been wildly successful. To acquire new customers, the company offers “boot camps” to potential customers, where these companies quickly develop AI tools that they can actually use to meet their business-specific needs. During these workshops, potential customers can work side-by-side with Palantir engineers to resolve issues real world problems.
In the recent earnings call, management noted that 915 organizations had already participated in boot camps, far exceeding the company’s original plan for 500 such workshops. Plus, the time it takes for Palantir to close deals is getting shorter because once prospects try AIP, they’re hooked.
The resulting demand was robust. In the first quarter, Palantir’s revenue rose 21% year over year and 4% sequentially to $634 million. The showstopper in the quarter was US commercial revenue, which rose 40% to $150 million (approximately 24% of total revenue) thanks to strong demand for AIP.
Palantir also achieved its sixth consecutive quarter of GAAP profitability, and many believe it is only a matter of time before the company is selected for inclusion in the S&P500. Some investors think this could happen as soon as this year. Furthermore, the guidance gave investors even more reason to cheer, with management forecasting full-year growth of at least 45% for the entire US commercial segment.
The Road to $1 Trillion
Palantir’s long track record of AI expertise and its work with both government and enterprise clients means many customers are looking to implement AI solutions into their operations. One clear opportunity that may not yet be fully factored into Palantir’s stock price is the potential for individual countries to develop sovereign AI solutions, a trend that has already begun. Combine that with the long-lasting consequences of AI adoption in enterprises and the company’s enormous potential becomes clear. That said, it will take years, if not decades, for this expansion to materialize.
According to the consensus among Wall Street analysts, Palantir should generate revenues of $2.7 billion in 2024, giving it a price-to-sales ratio (P/S) of around 21. Assuming the future P/S ratio remains constant from now on, Palantir would need to grow its annual revenues to roughly $46 billion to support a market cap of $1 trillion. Revenue grew 21% year-over-year in the most recent quarter. At that rate, Palantir wouldn’t reach the $1 trillion threshold until 2039.
However, there is a major wildcard at play here. Palantir’s US commercial revenue – which includes Generative AI – grew 70% year over year in Q4 2023 and 40% in Q1 2024, but its customer base grew by 55% and 69, respectively %. These numbers illustrate the rapid, albeit uneven, adoption of AI.
As mentioned above, when announcing first-quarter results, management raised expectations for the segment, expecting growth of at least 45% for the year, and it is currently Palantir’s biggest growth driver. In addition, management has a long track record of providing conservative guidance. If the company achieved average annual revenue growth closer to 40%, it could be worth $1 trillion in less than a decade.
Projections regarding the potential for generative AI have grown, but global management consultancy McKinsey & Company estimates that the market could be worth between $2.6 trillion and $4.4 trillion annually.
If Palantir continues on its current path and continues to leverage the potential of AI, it could reach a $1 trillion market cap sooner rather than later.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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. Danny Vena has positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Palantir Technologies. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. 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 one disclosure policy.
1 unstoppable stock that could join Microsoft, Apple, Nvidia, Alphabet, Amazon and Meta in the $1 trillion club was originally published by The Motley Fool
