Dan Ives of Wedbush Securities just placed a trillion-dollar valuation on Palantir.
Applications involving artificial intelligence (AI) seem to be evolving by the day. While it’s obvious that different facets of the technology world can be enhanced through AI, it’s become apparent that enterprise software is a particularly enormous opportunity.
When it comes to AI’s biggest trendsetters, investors don’t need to look much further than Nvidia, Microsoft, Alphabet, or Amazon. These trillion-dollar companies have large and growing AI software platforms, but none of them is solely a software business. Rather, each “Magnificent Seven” member above has businesses spanning chips, personal computing, advertising, cloud infrastructure, e-commerce, gaming, and more.
Recently, Dan Ives of Wedbush Securities suggested that Palantir Technologies (PLTR -4.63%) could become a trillion-dollar company within the next few years. Should that happen, Palantir would be the first pure-play enterprise software company to gain entrance to the trillion-dollar club.
Below, I’m going to assess Palantir’s current growth trajectory and explore some scenarios to see what it would take for the company to reach trillion-dollar status.
Palantir’s growth is quite impressive
In the table below, you can see Palantir’s annual revenue growth rates since the company’s initial public offering (IPO) in 2020.
| Category | 2020 | 2021 | 2022 | 2023 | 2024 |
|---|---|---|---|---|---|
| Revenue annual growth | 47% | 41% | 24% | 17% | 29% |
Data source: Palantir.
On the surface, it looks like Palantir’s growth has slowed considerably, but remember, 2022 and 2023 were somewhat challenging years despite the rising interest in AI. The U.S. was navigating abnormally high inflation and a rising interest rate environment, so companies were cutting back on their expenses, which took its toll on companies like software providers.
However, over the last six quarters, Palantir has reported accelerating revenue growth with notable upticks across the business thanks in large part to its AI platform. In fact, soaring demand for Palantir’s AI software has helped the company expand beyond government contracts to make a big splash in the private sector. Moreover, the top line acceleration has led to improved cash flow and consistent profits.
What would it take for Palantir to reach trillion-dollar status by 2030?
Although Palantir is profitable, the company’s earnings are still quite small. For this reason, the company’s price-to-earnings (P/E) and forward P/E multiples are incredibly high at 627 and 208, respectively. But valuation ratios don’t stay that high over the long term. For the sake of my analysis, I’m going to focus primarily on revenue.
Data by YCharts.
The chart above shows Wall Street’s consensus revenue estimates for Palantir over the next couple of years. Based on these estimates, the company is expected to deliver a compound annual growth rate (CAGR) of 31% through 2027. Should the company sustain that growth rate through the end of the decade, its top line would reach roughly $14.2 billion by 2030.
Here is where the analysis becomes a little challenging. Right now, Palantir trades for a price-to-sales (P/S) ratio of 102. Like the earnings-based multiples above, such an abnormally high valuation is not sustainable.
Data by YCharts.
However, Palantir’s long-term average P/S ratio is 23. While still a premium to the broad market, that’s a more reasonable figure for a leading software business.
If I apply Palantir’s long-term P/S ratio of 23 to its 2030 revenue forecast of $14,2 billion, that would imply a market cap of $327 billion in 2030. Taking this a step further, Palantir’s average P/S multiple since 2023 (the time period when AI emerged as a megatrend) is 26. Applying that to the 2030 revenue forecast would increase the company’s projected market cap to $369 billion.
Palantir has already benefited from significant valuation expansion, and in order for the stock to reach a $1 trillion market cap by 2030, Palantir would need to sustain a P/S ratio of more than 70 while delivering on the revenue forecast laid out above. But in order for such a valuation to be even remotely justified, the company would need to deliver better than 30% annual growth.
Despite its bright future, I do not see a reasonable path for Palantir to become a trillion-dollar stock by 2030. Rather, I think Ives’ comparison of Palantir’s potential to that of Oracle or Salesforce is far more appropriate.
With that in mind, Palantir may still have significant upside in the long run, but it’s already one of the most expensive stocks in the S&P 500. Investors shouldn’t buy in with the expectation it becomes a trillion-dollar company anytime soon.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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. Adam Spatacco has positions in Alphabet, Amazon, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, Oracle, Palantir Technologies, and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
