Palantir Stock (PLTR): Potential CAGR of over 25% while changing the future
For Palantir Technologies (NYSE:PLTR) the sky is the limit in terms of both total return potential and ability to shape the course of history. In this article we will discuss both to show why PLTR is not only a potentially enriching investment for your bank account, but also one that could help make the world a better place.
Why PLTR stocks could deliver a CAGR of over 25% by 2030
The top reasons to be bullish on PLTR are:
- It has a huge overall addressable market that it’s only just beginning to scratch the surface of
- It has a wide moat Gotham (government) business
- It is growing rapidly with existing and new commercial customers through innovative products
Let’s unpack each of them.
Massive growth potential
PLTR has a massive total addressable market of over $120 billion and looks set to skyrocket that number in the coming years. This is because the global big data industry – where PLTR is fast becoming a major player – is projected to achieve a CAGR of 20.4% by 2030. Assuming the total addressable market grows in line with the broader industry, PLTR’s total addressable market should be at least $600 billion by the end of 2030.
Analysts currently expect PLTR to generate around $5 billion in 2025, and the company is expected to generate close to $2 billion in 2022. That means it currently commands less than 1.7% of its total addressable market, giving it huge growth potential. If the company can continue to innovate with useful new products — how it invests aggressively — and maintain its competitive advantage with its existing products — which its growth with existing customers implies it does so successfully — PLTR should be able to generate revenue growth will be well above 20% by the end of the decade, if not beyond.
Wide Gotham moat
Another attribute of PLTR that makes us optimistic is the strength of its Gotham business’s competitive position within the Department of Defense. Between building relationships of trust over the past two decades through the successful manufacture of products and functions for various government agencies and ultimately performing satisfactorily missions vital to national security.
The reasons this is such a big deal in government business are:
- Government is nonprofit and often overly wasteful, so relationships with key decision makers are often more important than actual financial numbers. This usually makes government contracts very lucrative for providers.
- When it comes to these critical missions where national security and/or lives are at stake, trust and proven performance are far more important than scraping for every last dollar or even the latest technological innovations. As a result, PLTR has a large edge over competitors, as U.S. government decision-makers almost always select the vendor that their employees are familiar with and trust, even if their offering is more compelling from a value standpoint.
Management is clearly very optimistic about the future of their government affairs, especially given the increasing AI competition with China and the ongoing conflicts and tensions between Russia and allies in eastern Ukraine. As a result, they made the following bold statement on their recent conference call:
Our goal is to be the sixth prime contractor for the US federal government, a trusted partner in delivering complex, end-to-end integrated hardware and software solutions that builds on the legacy of our programs today. But we aspire to be the first company to do so as a software prime, leveraging software innovation and our unmatched expertise to deliver new integrated hardware-software capabilities faster than the pace of conflict.
Rapid growth of the foundry
Finally, we are bullish on PLTR as it is rapidly growing its commercial (foundry) business.
In its most recent quarterly report, PLTR posted revenue growth of 30.8%, which is obviously very strong. Even more encouraging was the fact that growth was heavily commercial driven, particularly in the US (136% growth), although international commercial growth also accelerated by 200 basis points to 24%.
The reason this is such a big deal is because – as we’ve discussed – PLTR’s strength on the government side of the business is well established in nearly two decades of trust and relationship building and is widely expected to be the company continued strong long-term maturity growth.
That means the real indicator of PLTR’s growth momentum from a long-term perspective is how well its foundry business is performing and how fast it’s growing. Not only were the sales figures and accelerated growth rates in the US and internationally reassuring, but the customer base was equally impressive. PLTR added 40 new customers in the first quarter and saw 86% year-over-year growth in that category
The number of commercial customers also saw continued strong growth, up 37% in the quarter and up 207% year over year overall. With the top 20 customers increasing their spend on PLTR products by an average of 24% over the past year, it seems that PLTR’s products are delivering excellent results to customers. This tells us that the existing revenue streams are likely to prove pretty tough over time, and that the company is building a strong organic growth platform from which to sell new products as they come out.
This all adds up to a view where we expect PLTR’s revenue to grow ~25% over the next eight years (assuming gradual market share gains), resulting in total revenue of ~11, $9 billion by 2030 (~2% of total addressable market). stock, up slightly from ~1.7% today). The EBITDA margin was 31.7% last year. So if we assume just a slight improvement in economies of scale to a 33% EBITDA margin in 2030, we’d see EBITDA around $4 billion. Assuming a reasonable EV/EBITDA multiple of 25x in 2030 (it’s currently 26.57x), we would see a total enterprise value of $100 billion. Backing that up to present enterprise value gives us a CAGR estimate of 25.7% total returns until then.
Why PLTR could change the course of history
In addition to its numerous strengths and delicious total return potential, PLTR is also poised to make a significant dent throughout history. While its foundry platform and commercial products are certainly neat technologies that should help US and US-centric companies be more efficient and competitive in the increasingly AI-powered and data-driven 21st century, its Gotham business is the one that really does History could be changing.
While the US is currently the world’s leading military power, communist China is investing aggressively to rapidly advance its own capabilities. In particular, she is intensely focused on challenging US leadership in the Pacific region. So pronounced are these dynamics that they have led the founder of leading hedge fund Bridgewater Associates, Ray Dalio, to predict a new world order in which there will be severe tensions, fierce competition, and possibly even open conflict between the United States and communist China becomes.
With the United States spread across the globe in some 800 military bases and across 70 countries, its priorities for military power and weapons development are fairly thin. By contrast, China has directed virtually its entire military and weapons development program toward defeating the United States in a conflict in the Pacific region, particularly in the South China Sea.
Although the US still spends more on defense than China, Chinese defense spending is much more targeted and efficient than US defense spending, and China’s economy will overtake the United States by 2030. It is therefore unlikely that the US will be able to maintain any competitive advantage over the Chinese in the Pacific region in the not too distant future, even while working with allies in the region such as Japan, South Korea, Taiwan and Australia . This is where PLTR could potentially change the course of history. As CEO Alex Karp recently said at the World Economic Forum:
People look at spending in the US and wonder if they could do the same for a lot less money.
In essence, the vision is that PLTR’s technology will be useful in facilitating optimal resource allocation and troop movement. In that sense, it will be an ultimate “force multiplier” that can allow the US to get a lot more bang for its buck compared to geopolitical adversaries like the Chinese. PLTR demonstrates this ability in videos such as the following:
PLTR has numerous strengths, most notably a massive growth ramp, a broad Gotham business, and accelerated growth in its foundry business. Additionally, the discounted share price offers delicious total return potential if it can continue to incrementally capture market share.
In addition, investors can also know that their investment is part of a truly unique technology company that could change the course of history by enabling the US and its allies to face the most pressing geopolitical conflicts of the 21, giving them a competitive edge to end a war with the avert or win communist China.