The paradigm shift represented by advances in artificial intelligence (AI) has had a profound impact on the market since the beginning of last year. The speed at which major players in the AI sector have climbed the ranks of the world’s most valuable companies is breathtaking.
Apple gave up the No. 1 position to Microsoftbut as of this writing, both have a market capitalization of over $3.3 trillion. NvidiaGPUs have become the preferred hardware for handling AI workloads, with the chipmaker climbing the ranks to surpass $3 trillion in valuation and, after a brief stint at number one, holding the third position. Alphabet, AmazonAnd Meta-platforms — each a pioneer in the AI revolution — have market capitalizations of $2.2 trillion, $2 trillion and $1.2 trillion, respectively.
Although it currently has a market capitalization of just $58 billion, it is no exaggeration to suggest that Palantir Technologies (NYSE: PLTR) Palantir is a strong contender to join the $1 trillion club. Investors need only look at the speed at which generative AI is being adopted to understand the magnitude of the opportunity Palantir is addressing.
Decades of AI experience
Palantir has only been on the radar of AI investors for about a year, but the company has a long and distinguished history of developing AI tools. Its initial goal was to help the various agencies of the U.S. intelligence community connect their legacy databases, share information, and analyze it, with the goal of enabling them to more effectively uncover potential terrorist plots.
The company has since expanded its offerings, first to other government and law enforcement agencies and then to businesses, providing AI-powered data mining tools that help management make data-driven decisions. With Palantir’s deep AI experience, the company quickly developed additional solutions that became useful when generative AI took off early last year.
The company’s Artificial Intelligence Platform (AIP) is the result of these efforts. Palantir has also developed a unique go-to-market approach that has been wildly successful. To attract new customers, the company offers “boot camps” to potential customers in which these companies quickly develop AI tools that they could actually use to solve their specific business needs. These workshops allow potential customers to work side-by-side with Palantir engineers to solve real world problems.
On its recent earnings call, management reported that 915 organizations have already participated in boot camps, far exceeding the company’s initial plan for 500 such workshops. Additionally, Palantir’s time to close deals is shrinking because once prospects try the AIP, they’re sold.
The resulting demand has been strong. In the first quarter, Palantir’s revenue increased 21% year over year and 4% quarter over quarter to $634 million. U.S. commercial revenue was the leading indicator for the quarter, up 40% to $150 million (about 24% of total revenue) on strong demand for AIP.
Palantir also posted its sixth consecutive quarter of GAAP profitability, and many believe it’s only a matter of time before the company is selected for inclusion in the S&P 500. Some investors believe that could happen as early as this year. Moreover, its guidance gave investors even more reason to celebrate, with management predicting annual growth of at least 45% for its U.S. business segment.
The Path to $1 Trillion
Palantir’s long history of AI expertise and its work with government and enterprise clients has many customers looking to it to deploy AI solutions in their operations. A distinct opportunity that may not yet be fully priced into Palantir’s stock price is the potential for individual countries looking to develop sovereign AI solutions, a trend that has already begun. Combine that with the secular tailwinds of enterprise AI adoption, and the company’s vast opportunity becomes clear. That said, this expansion will take years, if not decades, to play out.
According to Wall Street analyst consensus, Palantir is expected to generate $2.7 billion in revenue in 2024, giving it a forward price-to-sales (P/S) ratio of about 21. Assuming its forward price-to-sales ratio remains constant from here on out, Palantir would need to grow its annual revenue to about $46 billion to support a $1 trillion market cap. Its revenue grew 21% year over year in the most recent quarter. At this pace, Palantir wouldn’t hit the $1 trillion mark until 2039.
There is, however, an important element to consider here. Palantir’s U.S. commercial revenue, which includes generative AI, grew 70% year-over-year in Q4 2023 and 40% in Q1 2024, but its customer count grew 55% and 69%, respectively. These numbers help illustrate the rapid, if uneven, adoption of AI.
As mentioned above, when it released its first-quarter results, management increased its guidance for the segment, calling for growth of at least 45% for the year, and this is currently Palantir’s primary growth driver. Additionally, management has a long track record of issuing conservative guidance. If the company were to generate average annual revenue growth closer to 40%, it could be worth $1 trillion in less than 10 years.
Predictions about the potential of generative AI are growing, but global management consulting firm McKinsey & Company estimates the market could be worth between $2.6 trillion and $4.4 trillion annually.
If Palantir continues on its current trajectory and continues to exploit the AI opportunity, it could reach a market cap of $1 trillion sooner rather than later.
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John Mackey, former CEO of Amazon’s Whole Foods Market, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, 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 has 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 call on Microsoft and short January 2026 $405 call on Microsoft. The Motley Fool has a position in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 call on Microsoft and short January 2026 $405 call on Microsoft. disclosure policy.
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