The rapid adoption of artificial intelligence (AI) last year by some of the world's most valued corporations surprised many market watchers. Microsoft replaced Apple as the market leader with a $3 trillion market cap. Due to its gold-standard AI chips, Nvidia rose fast to No. 3 behind Apple with a $2.3 trillion market cap. This distinguished brotherhood includes Alphabet, Amazon, and Meta Platforms, each having AI solutions.
Palantir Technologies' (NYSE: PLTR) market valuation of $54 billion makes it appear unlikely that it will join the $1 trillion club. However, Palantir's experience and rising AI demand suggest the chances are in its favor.
Palantir wasn't well-known outside government agencies until recently. The data mining and AI specialist collaborated with U.S. intelligence to find terrorists and prevent strikes. Palantir eventually grew beyond its primary mission, producing powerful built-to-order AI models for other government agencies and corporations to uncover data insights.
When the generative AI business expanded early last year, Palantir used decades of experience to offer a broadly applicable solution. Palantir developed its own generative AI system, the Artificial Intelligence Platform (AIP), in months. Demand is highest due to the company's go-to-market strategy.
Palantir is holding boot camps to capitalize. In the company's fourth-quarter business report, management noted, "These immersive, hands-on-keyboard sessions allow new and existing customers to innovate live alongside Palantir experts, all working toward the same goal of implementing AI in operations Since organizations may use generative AI solutions to boost productivity or address their biggest issues, these seminars are packed.
Palantir announced 500 boot camps for the year in October. The firm has "blown that goal out of the water," executing 560 boot courses for 465 organizations in four months.
Strong and expanding demand is boosting financial outcomes. Palantir's fourth-quarter revenue rose 20% year over year and 9% sequentially to $608 million. AIP demand drove 70% growth in U.S. commercial sales. Some market experts expect Palantir to join the S&P 500 index this year after its fifth straight quarter of profitability. The company's prediction for 40% growth in the U.S. commercial segment, which includes AIP, caught attention.
How to reach $1 trillion Palantir stands out among AI suppliers. The company has a robust government contract record and extensive AI skills. That provides Palantir an edge in selling AI solutions to the U.S. government and its allies, and many believe governments are already seeking sovereign AI. The opportunity is evident when you consider enterprise enterprises' immense potential, but it won't happen overnight.
Wall Street expects Palantir to earn $2.71 billion in 2024 and $3.23 billion in 2025, giving it a projected P/S ratio of 16. For a $1 trillion market cap, Palantir must increase revenue to $60 billion per year if its P/S remains constant. Recent quarterly revenue increased 20% year-over-year. At that rate, Palantir would reach $1 trillion in 16 years.
However, its U.S. commercial business, powered by generative AI, increased 70% in Q4 and management expects at least 40% growth, which might surpass its other sales. Palantir tends to underpromise and overdeliver, so that estimate may be conservative. With 40% revenue growth, the company might be valued $1 trillion or more in a decade.
McKinsey & Company estimates the generative AI market will be worth $2.6 trillion to $4.4 trillion yearly, despite rapid growth. If Palantir grabs even a small share of that huge and rising opportunity, it will soon join the $1 trillion club.
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