Palantir Technologies: Can This High-Performing Artificial Intelligence (AI) Stock Continue to Conquer the Stock Market in 2025?

Palantir Technologies (PLTR 4.49%) The stock has been in high form in 2024 with rapid gains of 198% as of this writing, and it looks like its rapid run will continue after reporting impressive third quarter 2024 results in November 2024. 4.

The company, known for providing software platforms to commercial and government customers, delivered better-than-expected sales and earnings in the third quarter. The forecast was well above analysts’ expectations and investors sent the stock up 23% the day after quarterly results were announced.

Let’s take a closer look at how Palantir performed in the third quarter and determine whether this high-flying tech stock has enough energy in the tank to keep rising in 2025.

Palantir Technologies is riding the AI ​​wave

Palantir reported third-quarter revenue of $726 million, up 30% from the same period last year. Adjusted earnings rose even faster, up 43% to $0.10 per share. Both metrics were above analyst forecasts of $0.09 in earnings per share on revenue of $703.4 million.

What’s notable here is that Palantir reported a relatively slower revenue growth of 17% during the same period last year.

Additionally, Palantir’s Q2 2024 revenue growth was 27% year-over-year, so Palantir’s growth accelerated significantly, and artificial intelligence (AI) is a key reason for this. Management made it clear in the recent earnings call that growing demand for AI software has played a pivotal role in the company’s improved growth recently.

This is not surprising, as Palantir’s Artificial Intelligence Platform (AIP) enables customers to customize and deploy AI models in their operations, allowing them to improve the efficiency of their business. Palantir’s AIP has been well received by customers, resulting in healthy growth in the company’s customer base as well as the size of the contracts it signs.

Palantir ended the third quarter with 629 customers, an increase of 39% from the same period last year. It’s important to note that the company closed 104 deals worth at least $1 million in the most recent quarter, up from 80 in the same period last year.

Meanwhile, the number of deals worth $5 million or more rose to 36 from 29 in the same period last year. Deals worth $10 million or more rose to 16 from 12 year-over-year. Thanks to improving Palantir’s customer base and The increase in contract values ​​saw the company’s remaining performance obligations (RPOs) increase by a whopping 58% to $1.57 billion.

The faster growth of this metric compared to Palantir’s revenue growth bodes well for the company’s future. The RPO refers to the entire future value of a company’s contracts that still need to be fulfilled. Investors should note that Palantir’s RPO is primarily made up of commercial contracts.

To estimate the true potential of the company’s revenue pipeline, we need to take a look at remaining deal value (RDV), a metric that, for Palantir, takes into account the “total remaining value of contracts at the end of the reporting period,” including government contracts. Palantir reported a 22% year-over-year increase in RDV to $4.5 billion in its most recent quarter, suggesting that the company is able to maintain its healthy growth rate over the long term due to a solid contract pipeline.

Because of this, Palantir raised its 2024 revenue forecast to just over $2.8 billion from its previous expectation of around $2.75 billion. The updated guidance would result in nearly 26% year-over-year growth, an improvement from 2023’s 17% revenue growth.

So it’s obvious that Palantir is indeed benefiting from the growing need for AI software applications in both commercial and government companies, but there is one factor that could weigh on the stock in 2025.

Will this factor stop Palantir from flying higher in 2025?

Palantir’s remarkable rise in 2024 means the stock is trading very expensive at 46 times sales, well above the US tech sector average of 7.7. The company’s price-performance ratioMerit A multiple of 255 further underscores the fact that Palantir is a highly valued stock.

The expected earnings ratio (according to estimates) is well below the trailing multiple at 124, indicating a strong increase in the company’s earnings, but is still on the higher side compared to the technology sector’s average earnings multiple of almost 49.

The valuation suggests that Palantir is likely to continue to experience excellent growth. And the company could continue to achieve faster growth thanks to the booming market for AI software platforms, a market that is expected to see 40% annual growth through 2028 and generate $153 billion in annual revenue at the end of the forecast period.

Another reason Palantir’s high valuation might be justified is that it is reportedly the top-ranked AI software platform player. This is likely why the company enjoys robust unit economics, meaning revenue grows faster than costs with each customer.

Palantir’s operating margin rose an impressive 9 percentage points year-over-year to 38% in the third quarter. Consensus estimates expect Palantir’s earnings to grow at an impressive 59% annual rate over the next five years, and the company’s forward price-to-earnings-growth (PEG) ratio of 0.42 suggests this that it is undervalued in terms of the growth that it is expected to deliver.

Investors looking to buy a growth stock that benefits from AI adoption could look beyond the company’s trailing metrics, as the market could reward its stellar earnings growth with more upside in 2025 and beyond. I think it will continue to crush the market in the new year.