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If 2024 was the year Nvidia ate the world, 2025 belongs to Palantir. The defence-focused data-crunching company was the best-performing stock in the S&P 500 last year, overtaking the giant chipmaker after November’s US election. In the last week alone, its shares have risen by one-third, to give it a market capitalisation of nearly $260bn. The company’s mission: “making America more lethal”.
Explosive share price rises and bombastic rhetoric are easy fodder for meme stock-weary investors. Palantir certainly has many of the hallmarks. Chief executive Alex Karp describes his products as “powerful as fuck”. A valuation of 50 times next year’s forecast sales is twice the highest multiple ever afforded Tesla, Alphabet or Nvidia as listed companies.
Even so, Palantir could live up to the hype. Underneath the brimstone and vengeance, Palantir has worked out how to corral companies’ sprawling data troves to make them more efficient. To commercial customers, Palantir is something valuable if prosaic: a consultant that sells software, or what UBS analysts call a “McKinsey-meets-Databricks”.
Strip away the braggadocio, and it’s easier to have a sane conversation about Palantir’s worth. Analysts at Morningstar think it could one day capture 3 per cent of a total market worth $1.6tn, implying revenue of nearly $50bn. On a multiple of 10 times sales, in line with software giant Microsoft, Palantir should — eventually — be worth $500bn.
The question for investors is how long it takes to get there. Today, Palantir’s annual revenue is just $2.9bn. That’s the same size Salesforce, another software revolutionary, was in 2013. Marc Benioff’s company managed to sustain a growth rate above 20 per cent for almost a decade, something few companies have matched.
Yet even at this rapid clip, Palantir would fall short. Indeed, using a 10 per cent cost of capital to discount future cash flows, it’s as if investors are saying Palantir can hit that revenue of $50bn in six years — a staggering 60 per cent annual growth rate.
One thing Palantir has now that Salesforce didn’t is AI. Companies like Microsoft, Amazon and OpenAI have sunk billions of dollars into models Palantir engineers can use to get creative. It doesn’t hurt either that Karp and co-founder Peter Thiel have established a revolving door of contacts between their company and western governments.
Those are powerful assets. Even armed with both of them, Karp needs to produce growth his predecessors couldn’t have imagined in order to justify that valuation. If he can keep up his knack for fuelling corporate greed and government fear, Palantir has a fighting chance.
