Palantir Technologies (PLTR -4.71%) started 2025 with a bang, jumping more than 60% in just over two months on the back of a solid quarterly report that was released at the beginning of February, but the stock has witnessed a remarkable pullback since hitting a 52-week high on Feb. 18.
Specifically, Palantir stock is down 22% from its 52-week high. The decline can be attributed to multiple factors such as the overall negativity in tech stocks from the uncertainty caused by tariffs and other policies that are expected to weigh on the U.S. economy.
And there has been a rise in the probability of a recession in the U.S. because of the potential direction that the economy is expected to take. All this explains why investors may have decided to book profits in Palantir stock, especially after the massive gains that it delivered in the past year. Again, its expensive valuation could be another reason behind its recent pullback.
However, savvy investors will do well to keep an eye on Palantir stock and consider buying it if it continues to take a beating on the market. That’s because the company is sitting on a tremendous growth opportunity that could send its shares soaring over the next five years.
Palantir can become a much bigger company in the next five years
Palantir released its fourth-quarter 2024 results on Feb. 3. Annual revenue landed at $2.87 billion, up by 29% from the prior year. What’s worth noting is that the company’s revenue growth accelerated through the year. Its top line jumped by 36% in the final quarter of the year. Looking ahead, Palantir seems well placed to witness continued acceleration in growth since it is considered to be the leading provider of artificial intelligence (AI) software platforms.
Various third-party estimates have ranked it as the No. 1 vendor of AI software platforms. This puts the company in position to make the most of a market that’s expected to generate $153 billion in revenue in 2028, with a compound annual growth rate of nearly 41%. At this pace, the AI software platforms market could exceed $300 billion in revenue by the end of the decade.
Palantir’s revenue pipeline is now growing almost in line with the pace at which the AI software platforms market is forecast to grow. This is evident from the 40% year-over-year increase in its remaining deal value (RDV) in the previous quarter to $5.43 billion. That was nearly double its full-year revenue and higher than the top-line growth it reported for the full year.
The robust growth in this metric is great news for Palantir investors. That’s because RDV refers to the total value of the company’s contracts that are yet to be fulfilled. More importantly, there was a remarkable acceleration in RDV last quarter when compared to the 22% year-over-year increase in the third quarter of 2024.
This jump in the number of contracts that Palantir is signing can be attributed to the popularity of its Artificial Intelligence Platform (AIP), which enables customers to integrate generative AI solutions into their operations. AIP is not only helping Palantir attract new customers but is also encouraging its existing customers to expand the adoption of its generative AI platform, thanks to the productivity gains that it delivers.
For instance, management said on the February earnings conference call: “Panasonic Energy North America is seeing the effects of its AIP expansion as they’ve created a maintenance assistant to help 350 technicians in making 5.5 million batteries per day, resulting in reduced machine downtime, greater throughput, and rapid onboarding of new technicians.”
There were other such examples from management about how the productivity improvements that AIP is delivering have allowed it to land bigger deals with existing customers. These productivity gains can help expand the popularity of AIP because the productivity improvement that AI is expected to drive in the future is going to be one of the biggest reasons behind the adoption of this technology.
Market research firm IDC estimates that every $1 spent on AI-focused business solutions could generate $4.60 in value by 2030. So, don’t be surprised if Palantir maintains outstanding growth for the next five years.
How big can this software specialist become?
We have seen that the market for AI software platforms is expected to increase by 41% through 2028. Based on IDC’s estimate that this market was worth $28 billion in 2023, a 41% growth rate last year would have brought the market size for AI software platforms to almost $40 billion.
Assuming all the revenue that Palantir generated in 2024 was from the sales of AI-related solutions, its share of this market would stand at just over 7%. If it manages to increase its market share for AI software platforms to 10% by the end of the decade, its top line could jump significantly and may exceed $30 billion (based on the earlier calculation that this market could hit at least $30 billion in revenue in 2030).
That would be more than 10 times the company’s revenue in the previous year, and the stock market could reward such outstanding growth with healthy gains in the long run. As such, accumulating this AI stock on the dips could turn out to be a smart move because the recent weakness in Palantir’s shares may not last for long.
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.
