Where Will Palantir Stock Be 3 Years From Now?

Palantir (NASDAQ: PLTR) has been one of the best stocks to own over the past few years. If you invested $10,000 three years ago, that initial investment is now worth about $220,000. That's monstrous growth, but investors can't go back and capture those returns.

The real question is, where will Palantir be three years from now? I think the math is fairly certain on this projection, and if you're an interested Palantir investor, the time to take action is now.

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Palantir's software is seeing widespread adoption

Palantir's software specializes in artificial intelligence (AI)-powered data analytics. Originally, its software was developed for government use only, and allegedly helped track down the final hiding location of Osama Bin Laden. It has also been used for countless other activities, such as COVID-19 vaccine distribution logistics. The use cases for Palantir's software are nearly endless, as almost every activity has some form of data analytics involved in it.

This reality made Palantir expand into the commercial realm, and it has seen widespread adoption in this sector as well. Companies ranging from American Airlines to BP have adopted Palantir's software, both of which are massive payoffs from integrating Palantir's products into their daily workflows.

Still, the number of U.S. commercial clients is fairly slim, with Palantir's client list totaling about 530. That leaves plenty of room for expansion, which is a huge reason investors are interested in the stock.

Despite the ability to add more clients, Palantir's growth rates are incredible right now, with commercial revenue rising 73% year over year to $548 million and government revenue increasing 55% year over year to $633 million. Growth rates like these are impressive, and the fact that they are accelerating quarter after quarter showcases how Palantir is seizing the moment. The AI arms race has several faces, and Palantir is at the top of the AI application software world.

But where will that send the stock over the next three years?

Palantir's stock has a ton of growth baked into it

While Palantir's business has been nothing short of incredible, the stock now has a premium valuation because of it.

PLTR PS Ratio data by YCharts

Its valuation has skyrocketed since 2023, and now trades for 106 times sales and 224 times forward earnings. Those levels make Palantir's stock one of the most expensive in the market, and concern me about its potential to deliver future returns. If we assume that Palantir can grow its revenue at a 60% compound annual growth rate (CAGR) over the next three years and maintain its impressive 40% profit margin, Palantir's revenue and profits will reach $15.9 billion and $6.4 billion, respectively.

That's impressive growth for Palantir, and would place it among the largest software companies on the market. Still, if we assign a reasonable valuation of 50 times earnings to its $6.4 billion in profits, you'd get a stock with a market cap of $320 billion. Palantir's current market cap hovers around $390 billion, so this would indicate that if Palantir's stock traded at a reasonable level in the future, the stock price would actually decrease. That's not a great three-year outlook, and it also includes some incredibly bullish assumptions, as maintaining a 60% growth rate over the next three years will be very difficult to do.

As a result, I don't think Palantir is a great investment option right now. I love the business and would gladly purchase shares if it fell to a more reasonable valuation level, but as of right now, it is still far too expensive to invest in.

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends BP. The Motley Fool has a disclosure policy.