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 (NASDAQ: PLTR) 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.
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.
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.
