Palantir Technologies (NYSE: PLTR) has taken investors on a wild ride since its public debut in September 2020. The data mining company went public through a direct listing, and its shares opened at $10 before setting a record high of $39 the following January.
At the time, Palantir impressed the bulls with its rapid growth rates and ambitious plans of becoming the "default operating system for data across the U.S. government." The buying frenzy in growth and meme stocks further amplified its gains.
But by December 2022, Palantir's stock had sunk to an all-time low of $6. The bulls retreated as its growth cooled off, and rising interest rates popped its bubbly valuations.
However, it's subsequently more than quadrupled to about $26 as of this writing. The bulls returned as its revenue growth accelerated again and its profits soared. Palantir now has a market cap of $59 billion. But could it eventually become worth more than Microsoft (NASDAQ: MSFT), which is worth $2.96 trillion, by 2050?
How fast is Palantir growing?
Palantir's platform aggregates data from a broad range of disparate sources to help its clients make data-driven decisions. Its Gotham platform serves the government sector, while its Foundry platform provides its tools to commercial customers. In 2023, it generated 54% of its revenue from its government business and the remaining 46% from its commercial business.
From 2019 to 2023, Palantir's revenue grew at a compound annual growth rate (CAGR) of 32%. However, its growth decelerated significantly in 2022 and 2023 as it struggled with slowing demand for its government and commercial services.
Revenue Growth | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
Government | 35% | 77% | 47% | 19% | 14% |
Commercial | 17% | 22% | 34% | 29% | 20% |
Total | 25% | 47% | 41% | 24% | 17% |
Data source: Palantir.
That slowdown was caused by the uneven timing of its government contracts and macro headwinds for its commercial customers. That deceleration dashed its hopes of growing its revenue by more than 30% annually through 2025.
What's next for Palantir?
Palantir expects its revenue to rise 23% to 24% in 2024. That acceleration is being led by the expansion of the artificial intelligence (AI) market, which is driving companies to harvest more data for AI applications, as well as intensifying geopolitical conflicts, which are driving government agencies and military organizations to ramp up their spending on data mining services.
Palantir wasn't initially profitable on a generally accepted accounting principles (GAAP) basis when it went public. But it turned profitable on a GAAP basis over the past seven consecutive quarters as it reined in its stock-based compensation expenses, and it plans to stay in the black for the foreseeable future.
From 2023 to 2026, analysts expect Palantir's revenue to grow at a CAGR of 21% as its GAAP EPS increases at a CAGR of 57%. However, its stock isn't a bargain at 21 times this year's sales and 146 times its forward GAAP earnings.
What's the long-term outlook for Palantir through 2050?
Palantir's future growth will rely heavily on expansion of the data mining, AI, and military software markets. The data mining market could grow at a CAGR of 13% from 2024 to 2032, according to Fortune Business Insights. The AI software market could expand at a faster CAGR of 23% from 2023 to 2032, according to Precedence Research, while Valuates expects the military software market to expand at a much slower CAGR of 6% from 2023 to 2030.
We don't have much visibility beyond the early 2030s, but Palantir's core business might grow at a CAGR of 15% from 2024 to 2050 as it continues to lock in more customers, expands its ecosystem with new tools, and gobbles up smaller companies.
If Palantir achieves that long-term growth rate, it could generate about $100 billion in revenue by the final year. If it's still trading at 21 times sales by then, it would be worth $2.1 trillion -- which would still be lower than Microsoft's market cap today. But if it's trading at a more reasonable ten times sales, it would be worth roughly $1 trillion.
By 2050, Microsoft should also become a lot larger as it expands its cloud, AI, and gaming ecosystems. Assuming its valuations also hold steady and it grows its revenue at a CAGR of 10% from fiscal 2024 (which ended this June) to fiscal 2050, it could generate $2.9 trillion in revenue by the final year as its market cap hits a whopping $26.5 trillion.
So unless Microsoft's growth slows down significantly or antitrust regulators break up the company, it could still probably be worth a lot more than Palantir by 2050. But as the smaller, faster-growing company, Palantir might have a lot more upside potential than Microsoft over the next 26 years as it aggressively expands its AI-driven data mining platforms.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Will Palantir Be Worth More Than Microsoft by 2050? was originally published by The Motley Fool