Palantir Technologies (PLTR -2.75%) may have been one of the greatest success stories of 2024. The software company posted its biggest profit ever, joined the S&P 500, and saw its stock price soar 340%. This is thanks to its focus on artificial intelligence (AI) and growth in sales to both government and commercial customers.
But today, as we start a new year, many investors and analysts worry that Palantir's stock price has climbed too high too fast. And if they're right, that could signal a lackluster 2025 for the company. So now is the perfect time to take a closer look at Palantir and consider whether this highflying stock indeed is heading for a decline -- or whether it could extend gains in 2025.
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A new growth driver for Palantir
First, a summary of Palantir's path so far. This software player isn't a new kid on the block, and instead has built its business over 20 years. Palantir helps customers aggregate their data and put it to good use -- something that has made governments its biggest customers. But in recent times, the commercial customer has taken interest in Palantir, and the revenue and customer number trends suggest commercial players could represent a major growth driver for the company moving forward.
The business of aggregating data may seem rather dry, but it actually can produce pretty exciting results for both government and commercial businesses. By leveraging the power of their data, these players can make major gains in efficiency and even develop game-changing products or services. Palantir works with a variety of major names, from the Cleveland Clinic to United Airlines. For example, it helps the healthcare facility manage patient placement and has designed a predictive maintenance system for the airline.
And thanks to Palantir's launch of its Artificial Intelligence Platform (AIP) a little over a year ago, demand for its services has soared -- and as I mentioned earlier, growth is particularly impressive in the commercial business. Just four years ago, Palantir had 14 U.S. commercial customers -- today it has about 300. And in the most recent quarter, U.S. commercial revenue climbed 54% after already generating double-digit growth quarter after quarter over the past two years.
From AIP boot camps to signed deals
Palantir also developed a genius way of introducing AIP to potential customers. It holds boot camps so companies can give the platform a try and go from zero to a use case in a matter of hours. Demand for these camps has soared, and importantly, they often result in major contracts. For example, in the latest quarter, Palantir signed seven-figure deals with three customers less than two months after their boot camps.
This momentum has translated into gains in profit for Palantir too, with the company reporting its highest-ever quarterly profit in the recent period, at $144 million.
The fact that AIP still is a newish platform and that it's seeing high demand suggests more growth could be ahead. And the commercial customer could represent a key growth driver -- gains so far show these players are interested in Palantir's services and Palantir still has plenty of room to increase its commercial customer count.
All of this sounds great, and so does the share performance. But this comes with one problem, and that's valuation. Today, Palantir shares trade at an eye-popping 150 times forward earnings estimates, a level that looks pretty expensive. But, before dropping the idea of buying Palantir stock and running in the opposite direction, it's worth thinking of the company's growth prospects.
A valuation measure that considers growth
Here, we can look at Palantir's PEG ratio, a valuation measure that considers potential earnings growth ahead. A PEG ratio of less than 1 could signal a stock isn't overvalued and still may be worth buying. Right now, Palantir's forward PEG ratio is 0.3, down from more than 0.6 just a few weeks ago.
This suggests there still could be room for gains ahead for Palantir. And as long-term investors, aiming to buy and hold a stock for five-to-10 years, buying Palantir today -- even at a lofty level from a forward P/E perspective -- still could be a winning move. If the company continues along its current path, it has what it takes to deliver earnings growth and stock performance over time.
As for 2025, it's impossible to predict for sure whether Palantir stock will climb. But, while I don't expect another 300% gain, I am more optimistic than Wall Street and think this top AI stock could advance in the months to come.
