Palantir Technologies(NASDAQ: PLTR) stock has been crushing the market in 2025. It's up by 43% year to date as of this writing, which may seem a tad surprising considering its expensive valuation.
After all, technology stocks have been under pressure this year on account of President Donald Trump's tariff-induced trade war, which has threatened to tip the U.S. economy into a recession. The Nasdaq Composite index, though it has rebounded from a deeper slide, is still down by more than 8% so far this year.
However, Palantir's lofty valuation caught up with the stock somewhat following the release of the company's first-quarter results on Monday.
The stock fell more than 12% on Tuesday even though Palantir beat Wall Street's sales expectations, delivered in-line earnings, and raised its full-year guidance. In my view, the drop in the share price looks like an opportunity for savvy investors to buy a top growth stock that they can hold for the next five years.
In fact, I think Palantir's market cap could reach $1 trillion by 2030.
Image source: Getty Images.
Palantir's growth is set to accelerate thanks to AI
Palantir Technologies made its name by supplying software platforms and analytics solutions to U.S. intelligence agencies and the Defense Department. It is now leveraging that expertise in the commercial market, and the good part is that customers have been queuing up to sign up for its Artificial Intelligence Platform (AIP) to improve the efficiency of their operations.
AIP allows Palantir customers to integrate large language models and other AI applications into their business operations in ways that reduce costs and improve productivity. This explains why the company isn't just attracting new customers for this solution but is also winning more business from its established ones.
On the latest earnings conference call, Palantir described several instances of how customers are using AIP to improve productivity. So, it wasn't surprising to see a 66% year-over-year increase in the value of contracts that Palantir booked in the first quarter. Specifically, Palantir booked $1.5 billion worth of new contracts, which took its total remaining deal value (RDV) to almost $6 billion, up 45% from a year earlier. (RDV refers to the total value of the revenue remaining to be recognized under the contracts that a company has already signed.)
It is worth noting that both the RDV and the total contract value booked by Palantir last quarter exceeded the 39% year-over-year growth in its top line. This is precisely the reason the company's growth has been accelerating in recent quarters: It has been winning new contracts at a faster rate than it is fulfilling them, thanks to AI. Moreover, the company's unit economics are strong since it is getting a growing volume of business from its established customer base. This is the reason Palantir's adjusted earnings rose by an impressive 62% year over year to $0.13 per share.
The healthy demand for Palantir's AI software solutions also encouraged management to increase its 2025 revenue guidance to almost $3.9 billion from an earlier estimate of around $3.75 billion. If it hits that updated guidance, its top line will be 36% higher than in 2024. However, don't be surprised to see the company do better than that given the pace at which its revenue pipeline is growing. Further guidance increases are possible as the year progresses.
Why a $1 trillion valuation is possible in five years
Last year, market research firm IDC predicted that the AI software platforms market will grow at an annual rate of almost 41% through 2028 to $153 billion.
Palantir, therefore, is landing new contracts and growing its revenue pipeline at a much faster pace than its end market is expected to grow. Assuming Palantir's top line increases at even a 40% rate (in line with its end market) for the next five years, its revenue would jump to almost $21 billion in 2030 (starting from its projected 2025 revenue).
The stock currently trades at 87 times sales. Even if its P/S multiple contracts to 50 after five years, its market cap could touch $1 trillion in 2030 based on its projected sales figure. That would be more than triple its current market cap. Moreover, Palantir is the No. 1 vendor of AI software platforms (according to third-party estimates), so there is a good chance that it may be able to grow at an even faster rate.
Also, the combination of its position at the top of the AI software platforms space and its fast-improving revenue pipeline should allow it to continue commanding a premium valuation over the long run. And the company's favorable unit economics are likely to translate into faster bottom-line growth than top-line growth.
All this makes Palantir a potential candidate for the trillion-dollar market cap club. So investors looking for a growth stock should consider buying it following its latest slip.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
