It has been just under six years since Palantir Technologies (PLTR +2.88%) went public by way of a direct listing in September 2020, and the company recently reported its fastest-ever revenue growth during its life as a public company.
Palantir released first-quarter 2026 results on May 4. It not only crushed Wall Street's expectations handsomely but also upgraded its full-year guidance on the back of robust demand for its artificial intelligence (AI) software platform. In fact, a closer look at Palantir's results suggests its growth rate could continue to improve.
Let's see why that may be the case and check why this AI stock could be a solid investment for the next five years.
Image source: The Motley Fool.
Palantir Technologies' growth rate could keep getting better
Palantir's Q1 revenue shot up 85% year over year to $1.63 billion, a substantial improvement over the 39% revenue jump it clocked in the year-ago period. Management noted on the latest earnings call that this was Palantir's "highest overall revenue growth rate as a public company." However, there is ample evidence that Palantir has room to further boost its growth rate.
NASDAQ: PLTR
Key Data Points
The company is attracting new customers at a nice clip, while existing customers continue to offer larger contracts due to the productivity gains unlocked by its AI software platform. Palantir's overall customer count jumped by 31% year over year in Q1 to 1,007. Even better, Palantir signed total contracts worth $2.4 billion last quarter, an increase of 61% over the year-ago period.
Palantir management notes that the increase in its total contract value (TCV) was driven by "expansions at existing customers and new customers acquired in Q1 of last year." The new customers Palantir acquired last quarter can pave the way for stronger future growth as they spend more on its offerings.
Importantly, the higher spending by existing customers has led to a remarkable acceleration in Palantir's bottom-line growth. The company reported adjusted earnings of $0.33 per share, a jump of more than 2.5x over the year-ago period's reading of $0.13 per share. The company's ability to extract more business from existing customers is boosting its margins, as it won't have to spend extra money on customer acquisition.
Data by YCharts
As it turns out, Palantir has a very lean sales team of just 70 people. This is an indication of just how popular Palantir's AI software platform is among both commercial and government customers. To add some perspective, Palantir's sales and marketing expenses increased by 35% year over year in Q1 to $319 million, well below the 85% increase in revenue.
Also, the larger contracts that Palantir signed in Q1 have increased its remaining deal value (RDV) to $11.8 billion, a 98% jump over the prior-year period. RDV is the total remaining value of contracts that Palantir is yet to fulfill at the end of a period. The size of Palantir's RDV suggests it can sustain red-hot revenue and earnings growth.
Not surprisingly, the company now anticipates $7.66 billion in revenue in 2026, up from the earlier estimate of $7.19 billion. The updated guidance points to a 71% increase in revenue over last year. The company has also raised its profitability forecast. It won't be surprising to see further guidance hikes throughout the year, owing to the fast-growing AI software platform market and Palantir's sizable RDV.
The stock could at least double over the next five years
There is no doubt that Palantir's numbers and guidance are more than impressive, but the stock's performance on the market has left a lot to be desired of late. Palantir stock is down 23% over the past six months. In fact, the stock retreated despite delivering a beat-and-raise earnings report.
Palantir's expensive valuation is the reason behind its poor returns lately. The stock is far from cheap at 155 times trailing earnings and 97 times forward earnings. It also has a pricey sales multiple of 68. However, growth-oriented investors should consider looking past Palantir's valuation, as the company's remarkable growth can justify its valuation.
Its revenue and earnings growth rates are picking up, a trend that could continue as the AI software platforms market offers massive growth potential. A third-party research report expects the AI software platforms market to generate $296 billion in revenue in 2030, up from $79 billion last year, at a compound annual growth rate (CAGR) of 35%.
Palantir is outpacing the market's growth, and that too in a profitable manner. What's more, analysts are expecting Palantir's growth to pick up in the future.
Data by YCharts
It won't be surprising to see that trend continuing until the end of the decade. Assuming Palantir's revenue increases at a 50% rate in 2029 and 2030, its top line could reach $35.3 billion by the end of the decade (using the 2028 revenue estimate of $15.7 billion as the base). If Palantir trades at even 20 times sales at that time, a huge discount to its current sales multiple, its market cap could reach $706 billion.
That points toward a possible upside of 114%. However, Palantir could do better than that, as analysts may be underestimating its growth potential. So, investors looking to add a growth stock to their portfolios may want to capitalize on the recent pullback and buy it before it steps on the gas once again.
