If you had invested $25,000 in Palantir Technologies (PLTR -0.59%) stock at the start of 2024, you would have finished the year with more than $110,000. Last year was a significant one for the business as it solidified itself as a top growth stock. Not only did it generate solid top-line growth, but its bottom line was also impressive. As a result, the stock is now a part of both the S&P 500 and the Nasdaq-100 index.
The data analytics company is leveraging artificial intelligence (AI) to grow its operations, with CEO Alex Karp remaining bullish on its future growth prospects. But at an elevated valuation and market cap of around $170 billion, is Palantir Technologies stock still a great place to invest, and can it turn a $25,000 investment into $1 million or more?
Will AI demand slow down?
This is the big question investors need to ask themselves if they’re serious about buying shares of Palantir. AI-fueled demand has helped accelerate the company’s growth rate in the past year and has made Karp excited about its future.
Analysts at Grand View Research also project a wildly optimistic outlook for AI, forecasting that the global AI market will expand at an annual rate of 36.6% until 2030. And if you believe that outlook and that AI will truly change the game for industries and businesses around the world, it wouldn’t be hard to remain bullish on Palantir in the long run. It provides data analytics services that many businesses rely on to make important decisions in a timely basis. The U.S. government is also a key customer, demonstrating the trust that many important decision-makers have in the company’s platform.
Recently, however, there have been growing concerns that perhaps companies are spending a bit too much on AI. A new Chinese AI model, made by DeepSeek, reportedly cost significantly less than ChatGPT and other chatbots to develop, despite performing similarly to them. Tech stocks fell as a result of this news.
Depending on your outlook for AI and whether you believe the hype or the fear about AI-related spending, that is likely to dictate whether you still think Palantir is a good buy for the long term. If you’re still bullish, despite the stock’s high valuation, then it’s time to ask yourself the next question:
Can Palantir grow to a near-$7 trillion valuation?
Palantir would need to grow into a $6.7 trillion market cap to turn a $25,000 investment into $1 million. This would be its valuation if it grew to 40 times its size today. There isn’t even a $4 trillion stock on the market today but in 20 or 30 years, it may be much more common to see stocks trading at these types of valuations.
If you’re looking at a period of 20 years, then Palantir would need to rise by an average annual rate of more than 20% to reach a $6.7 trillion market cap. But if you’re willing to wait 30 years, then the necessary annual return would fall to just 13%.
That would mean that Palantir’s stock has to consistently outperform the market, as the S&P 500 historically averages an annual return of around 10%.
Palantir has been a great buy, but I don’t think the stock will make you a millionaire
Shares of Palantir were down on Monday on news relating to the DeepSeek developments, which highlights just how fragile this tech stock can be due to its mammoth valuation — it trades at more than 370 times its trailing earnings.
While anything can happen when you’re looking at the very long term, I wouldn’t expect this be a millionaire-making stock based on what is evident about Palantir’s business today. There are many AI companies today and more will emerge in the future. And without a clear moat and way to ensure its growth rate will remain strong for years to come, I don’t see a reason to believe that this will remain a top stock to own for decades.
Palantir may still produce good returns for investors in the near term, but there are arguably better options out there for growth investors to consider today.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
