The $1 trillion club is elite. As of this writing, only six American companies boast a market cap greater than $1 trillion: Apple, Microsoft, Nvidia, Alphabet, Amazon, and Meta Platforms.
Yet, looking ahead a few years, other companies are likely to join the club.
So, what about Palantir Technologies (PLTR -3.72%), a company at the forefront of the artificial intelligence (AI) revolution? Could it ride its recent stock market rally all the way to a $1 trillion valuation?
Let's dig in and see.
Image source: Getty Images.
What does Palantir do?
First, in order to understand why Palantir could reach a $1 trillion valuation, you must grasp what the company does.
In the simplest terms possible, Palantir is a problem-solving company. Every day, the world produces an incalculable amount of data. This data can be a powerful asset, particularly to the organizations that produce it, but its sheer volume often makes it difficult to parse and understand.
Take a hospital, for example. On any given day, a hospital might admit hundreds of patients, collect millions of data points, and schedule thousands of work hours for doctors, nurses, and other staff.
Palantir, through its AI-powered platform, seeks to provide clarity to clients at large organizations such as hospitals. By using the company's platform, staff members can identify patterns and develop solutions that deliver better outcomes to all stakeholders.
For example, Britain's National Health Service (NHS) used Palantir's technology to help improve its efficiency and thereby reduced patient waiting times for surgery.
Delivering these improvements can save large organizations lots of money. Because of that, Palantir is seeing its customer count explode. In its most recent quarter (the three months ending on June 30, 2024), the company's customer count jumped by 41% from a year ago. While Palantir previously focused on government contracts, its push into the private sector is taking off with U.S. commercial customers up 83% year over year.
In short, over the next five years (and longer), organizations will continue to implement AI-powered solutions to help improve their operations and save money. Palantir stands to benefit, and that's why its stock is up 129% year to date and could rise much higher over the next five years.
Can Palantir grow to a $1 trillion company?
Next, let's examine how large Palantir already is. As of this writing, the company has a market cap of $89 billion. So, for Palantir to reach a market cap of $1 trillion, its valuation would need to increase about 11-fold. In other words, its stock would need to increase in value by 1,100%. That works out to a compound annual growth rate (CAGR) of more than 62%.
To say the least, that's a heavy lift. Yet, it's not impossible. In fact, there are examples of companies meeting or exceeding that level of growth.
For example, over the last five years, Nvidia and Tesla have both recorded CAGRs exceeding 62%. Nvidia has an incredible CAGR of 93%, while Tesla's is 74% -- all of that growth coming in the years between 2019 and 2022.
And there are others that have come close. Eli Lilly's five-year CAGR stands at 52%; Broadcom's is 45%.
In other words, a 63% CAGR is astonishingly high, but it's not unachievable.
That said, Palantir would need an amazing rally to have any chance of hitting a $1 trillion valuation by 2030 -- which I think is unlikely to happen.
Is Palantir a buy now?
Yet, perhaps the better question to ask is whether Palantir stock is a buy right now.
On that question, I'm far more bullish.
Palantir is a well-run company with an innovative product, riding the wave of enthusiasm over AI. Its revenue growth stands at 27%, while its customer count is growing even faster.
In short, the company remains a growth investor's dream come true. And therefore, I continue to believe it is a stock worth owning -- even if it's unlikely to hit a $1 trillion valuation by 2030.
