This has been a year to remember for shareholders of Palantir Technologies (PLTR -0.44%). Investors endured the pain of the stock falling to the single digits after the company went public. However, the technological marvel of artificial intelligence (AI) breathed life back into the stock, and the company's repeated quarters of strong performance further fueled market sentiment.
While investors may understandably worry that the stock's 48% move since January leaves little meat on the bone, have no fear. Investing sometimes requires looking decades ahead, and Palantir may have more promise than most companies you'll encounter.
Here is why long-term investors can buy today and hold the stock for decades.
Government loyalty underpins Palantir's business
The internet created the digital world we know today. That means humanity has spent over two decades creating increasing amounts of data at breakneck speed. Approximately 90% of all the world's data is from the past two years. Just think about how much data the world will have in five, 10, or 25 years!
This is an underrated aspect of artificial intelligence (AI), which has emerged as the next evolution of technology. Data plays an important role; AI is trained on data, meaning organizations with the best data and those who do the most with it can have a competitive edge.
This simple concept is the key to understanding Palantir's massive investment potential. The company develops and deploys custom data analytics software via Gotham, Foundry, and AIP platforms. This technology's goal is simple: seamlessly turning data into actionable, real-time insights.
Palantir can be a conundrum because its complex product offers little visibility to investors and outsiders. So, instead, look to who has and continues to lean on Palantir. The U.S. government, which flexes its virtually unlimited resources to maintain a competitive edge as a world superpower, has remained loyal to Palantir for over a decade. Palantir's technology allegedly helped the U.S. track down terrorist Osama bin Laden back in 2011.
The government continues to back Palantir today. Palantir recently received a new $480 million contract from the Department of Defense. CEO Alex Karp confirmed that the company's technology is aiding Ukraine in its war with Russia. These situations require cutting-edge tools, and Palantir's relevance both then and now should give investors a clear vote of confidence in how much value its software brings to the table.
Unlocking years of upside in the private sector
The U.S. government and its allies are uniquely equipped to spend on the best of the best. That's why it can take time for some of the government's best tools to trickle into the private sector. However, Palantir is beginning to gain momentum with commercial customers. This is ultimately where Palantir's long-term upside lies.
Companies have begun realizing that AI is critical to compete in the future and are scrambling to position themselves accordingly. Palantir launched its AIP platform last spring to help companies develop and deploy AI applications. It's been a massive success. Alex Karp has stated that demand for AIP is unprecedented. Since then, Palantir's financial performance has given substance to that claim.
You can see below that revenue growth has reaccelerated since AIP launched last year:
PLTR Revenue (Quarterly YOY Growth) data by YCharts
More importantly, Palantir's customer count is growing faster than revenue, which could signal further growth upside ahead as new applications come online. Palantir's U.S. commercial customer count grew 69% year over year in Q1 and remains modest at 262. There are over 20,000 large corporations in the United States alone.
Think decades ahead
Palantir's not selling an off-the-shelf product. It takes time to develop and launch applications, which means that Palantir may never exhibit the explosive growth of Nvidia. However, Palantir looks poised for decades of steady double-digit growth.
Palantir's uses range from fraud detection to military operations. Its latest contract with Starlab will see Palantir model a digital clone of a space station to simulate maintenance and test operations. Such flexible technology makes any company (large enough to afford the software) a potential customer.
Additionally, the company is profitable based on generally accepted accounting principles (GAAP) and has $3.8 billion in cash against zero debt, making Palantir a candidate to spend years buying back stock and driving investment returns through relentless earnings growth.
Where could Palantir be in two or three decades? Corporate opportunities alone give Palantir a significant runway. The government business arguably gives Palantir a high floor as well. Palantir's current market cap exceeds $50 billion. Still, investors could be looking at a future mega-cap stock if they're willing to buy and hold it for the foreseeable future.
