Can a $10,000 Investment in Palantir Technologies Turn Into $1 Million by 2035?
Shares of Palantir are up nearly 20-fold since the start of 2023.
Its Artificial Intelligence Platform is driving strong sales growth outside of its core government customer base.
Here's how much Palantir shares could reasonably be worth by 2035.
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Palantir Technologies (NASDAQ: PLTR) has been one of the biggest winners of the artificial intelligence (AI) boom of the last few years. If you had invested $10,000 in the stock at the start of 2023, you'd have about $200,000 worth of the company, as of this writing. At its current rate, it seems like only a matter of time until that $10,000 investment turns into $1 million.
But can investors reasonably expect a $10,000 investment in Palantir today to turn into $1 million by the end of 2035? Here's what it'll take for Palantir to 100x over the next decade.
Palantir has seen fantastic growth in its business, mostly thanks to the success of its Artificial Intelligence Platform (AIP). The AIP makes its software, which takes big data sets and draws actionable insights for enterprises and governments, accessible to almost anyone by leveraging natural language processing. Instead of having to get nitty-gritty with the data, a user can easily interact with proprietary data with the help of AI to build new applications and workflows and make decisions.
AIP expands Palantir's user base beyond data scientists and specialists. It also allows an enterprise to incorporate Palantir's software into more parts of its business where users might not be as technically savvy. As a result, Palantir has seen extremely strong growth, particularly among U.S. commercial customers. U.S. commercial revenue climbed 71% year over year last quarter.
Management expects revenue to come in between $3.89 billion and $3.902 billion for 2025. That's a growth rate of about 36% for the year, accelerating from last year's 29% growth. As the fast-growing U.S. commercial revenue continues to become a bigger part of its business, growth could continue accelerating for some time.
If Palantir keeps up an average 35% revenue growth pace through 2035, it'll generate over $75 billion in annual revenue that year. Considering the high margins of software-as-a-service (SaaS) businesses, that could be an extremely profitable business. For example, Salesforce (NYSE: CRM), a much bigger SaaS company, has an operating margin exceeding 20% at roughly $38 billion in annual revenue. It's not unreasonable to expect a company twice that size to produce 25% or even 30% operating margin. As such, Palantir could be generating over $20 billion in operating profits in 2035 if it remains on the current growth trajectory.
Those are lofty projections, but not completely outside of the realm of possibility for a company with the potential of Palantir. But that's a bullish case.
To turn $10,000 into $1 million, Palantir will need to increase in value 100-fold. Today, the company is worth about $300 billion. That means it needs to be worth $30 trillion in 2035. Keep in mind, the most valuable companies today are worth $3 trillion. So, $30 trillion is a big ask.
Further working against Palantir is its current valuation. The stock currently trades for a price-to-sales ratio exceeding 100. Even on a forward-looking basis, the price is more than 75 times expected sales. Likewise, Palantir's enterprise-value-to-EBITDA multiple is extraordinarily high at about 160 times forward estimates. By comparison, Salesforce trades for 7.5 times sales and about 25 times EBITDA.
It's unlikely Palantir will be able to maintain that valuation as it grows larger. High expectations are already baked into the stock. Hence, when management raised its full-year revenue outlook by 4 percentage points earlier this month, the stock actually fell.
Even if Palantir maintains its outrageously high valuation multiple next decade, its growth won't be enough to turn $10,000 into $1 million. If its valuation comes down to Salesforce levels, it might be worth double its current value in 10 years, and that's based on a relatively bullish outlook for the business.
Doubling your investment in 10 years would translate to a compound annual return of just 7.2% over the next decade, which is below the S&P 500's historic average. That's probably not what Palantir investors are looking for. So, not only is Palantir unlikely to turn $10,000 into $1 million over the next decade, it might even underperform the market. And that's almost entirely due to its extremely high valuation today.
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Adam Levy has positions in Salesforce. The Motley Fool has positions in and recommends Palantir Technologies and Salesforce. The Motley Fool has a disclosure policy.
Can a $10,000 Investment in Palantir Technologies Turn Into $1 Million by 2035? was originally published by The Motley Fool
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