Investors are bullish on this AI defense contractor. The numbers tell a different story.
2025 has been one of the most manic-depressive stock markets in history. Tariff mayhem — will they be higher or lower or gone by the time this publishes? — is causing wild gyrations in stock prices. Palantir (PLTR 8.38%) stock is a prime example of this mayhem. Shares jumped up to $120, back down to $80, and have now recovered up to $120 in just a few months.
Investors remain aggressively bullish on Palantir’s growth prospects in analytical software for the U.S. military and big business, with the stock’s market cap up to $280 billion as of this writing. That recently made Palantir the 37th largest company in the world by market capitalization. Can the stock join the “Magnificent Seven” and hit a market cap of $1 trillion by 2030?
Let’s find out.
Palantir is winning in AI. Image source: Getty Images.
Fast growth in the United States
Artificial intelligence (AI) has been a boon for Palantir. The company builds analytics software that pulls together all sorts of data points for large organizations, whether it be the U.S. government or businesses. Now, it is supercharging its product suite with AI automation to give real-time insights to leaders on the factory floor or the front lines of war.
With a growing reputation for no-nonsense expertise, Palantir’s revenue growth has accelerated in recent quarters to 39%. This is driven by huge growth of 71% year over year for U.S. commercial revenue. Just in Q1 of 2025 the company closed 139 deals with customers for at least $1 million and 31 deals of at least $10 million. Impressive stuff.
This revenue growth acceleration at a larger scale has investors more bullish on Palantir’s prospects, which has driven the stock price higher. With revenue of $3.1 billion over the past 12 months, there is a chance that Palantir could be generating more than $10 billion in revenue at some point this decade if this revenue growth continues. With the growing demand for AI analytics, this is an entirely plausible outcome for the company.
What will profit margins get to at scale?
Another important improvement from Palantir has been its profitability. It has gone from huge operating losses just a few years ago to margins of 13% over the last 12 months.
Palantir has 80% gross margins, which indicates that it will be able to grow its bottom-line operating margin even more as the business matures and revenue growth slows. Last quarter, the company spent 27% of its revenue on sales and marketing and 15% of revenue and product development. These costs will not go to zero, but should become a smaller percentage of revenue as Palantir sells more of its high-margin software to organizations around the world.
Large software providers with 80% gross margins usually achieve 30%, 40%, or even higher profit margins once they mature. I would expect Palantir to hit the same level once revenue surpass $10 billion a year.
PLTR Operating Margin (TTM) data by YCharts
The easy truth about Palantir stock
Palantir is a fast-growing business with increasingly strong profit margins. Too bad the stock is clearly overvalued and will not reach a market cap of $1 trillion by 2030.
Why? Because it is simply not that large of a business and will not generate large enough profits by 2030 even in the most optimistic of scenarios. Over the next five years, let’s assume that Palantir’s revenue growth accelerates to an average of 50% a year and operating margin balloons to 40%. I do not think this is a likely scenario, but even if it occurs, Palantir’s stock is still overvalued today.
Fifty percent revenue growth for five straight years will bring Palantir’s revenue to $23.6 billion, and a 40% operating margin would be $9.5 billion in annual earnings. That is an earnings multiple — excluding taxes — that is 30 times the current Palantir market cap. A premium pre-tax earnings multiple compared to today’s market cap, let alone a market cap of $1 trillion. And this is in an extremely optimistic growth scenario for Palantir.
Palantir is a great business, but the stock is wildly overvalued. Avoid putting Palantir stock in your portfolio and you will be happy over the next five years.
Brett Schafer 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.