Will Palantir be worth more than Microsoft by 2050?

Palantir Technologies (PLTR -1.07%) has taken investors on a wild ride since its public debut in September 2020. The data mining company went public through a direct listing, and its shares opened at $10 before setting a record high of $39 next January.

At the time, Palantir impressed the bulls with its rapid growth rates and ambitious plans to become the “default operating system for US government data.” The buying frenzy in growth and meme stocks further amplified their gains.

Image source: Getty Images.

But by December 2022, Palantir shares had fallen to an all-time low of $6. Bulls retreated as its growth cooled and rising interest rates made its valuations bubble.

However, it has since more than quadrupled to around $26 at the time of writing. Bulls returned as its revenue growth accelerated again and profits rose. Palantir now has a market cap of $59 billion. But it could end up being worth more than that Microsoft (MSFT -0.17%)worth $2.96 trillion by 2050?

How fast is Palantir growing?

Palantir’s platform aggregates data from a wide range of disparate sources to help its customers make data-driven decisions. Its Gotham platform serves the government sector, while its Foundry platform provides its tools to commercial customers. In 2023, it generated 54% of its revenue from government business and the remaining 46% from its commercial business.

From 2019 to 2023, Palantir’s revenue grew at a compound annual growth rate (CAGR) of 32%. However, its growth slowed significantly in 2022 and 2023 as it struggled with slowing demand for its government and commercial services.

Data source: Palantir.

This slowdown was caused by the uneven timing of government contracts and headwinds for its commercial customers. That deceleration dashed hopes of growing its revenue by more than 30% annually through 2025.

What’s next for Palantir?

Palantir expects its revenue to grow 23% to 24% in 2024. This acceleration is driven by the expansion of the artificial intelligence (AI) market, which is causing companies to collect more data for AI applications, as well as intensifying geopolitical conflicts, which is causing government agencies and military organizations to increase their spending on data mining services.

Palantir was not initially profitable on a generally accepted accounting principles (GAAP) basis when it went public. But it has turned profitable on a GAAP basis for the past seven consecutive quarters as it has reduced its stock-based compensation expense and plans to stay in the black for the foreseeable future.

From 2023 to 2026, analysts expect Palantir’s revenue to grow at a CAGR of 21% as GAAP EPS grows at a CAGR of 57%. However, its stock is no bargain at 21 times this year’s sales and 146 times its forward GAAP earnings.

What is the long-term outlook for Palantir through 2050?

Palantir’s future growth will rely heavily on expanding the data mining, AI and military software markets. The data mining market could grow at a CAGR of 13% from 2024 to 2032, according to Fortune Business Insights. The AI ​​software market could expand at a faster CAGR of 23% from 2023 to 2032, according to Precedence Research, while Valuates expects the military software market to expand at a much slower CAGR of 6% between 2023 and 2030.

We don’t have much visibility beyond the early 2030s, but Palantir’s core business could grow at a CAGR of 15% from 2024 to 2050 as it continues to lock in more customers, expand its ecosystem with new tools, and to swallow up smaller companies.

Could Palantir Be Worth More Than Microsoft By 2050?

If Palantir achieves this long-term growth rate, it could generate roughly $100 billion in revenue by its final year. If it still trades at 21 times sales by then, it would be worth $2.1 trillion — which would still be less than Microsoft’s market cap today. But if it trades at ten times more reasonable sales, it would be worth about $1 trillion.

By 2050, Microsoft should get much bigger as it expands its cloud, AI and gaming ecosystems. Assuming its valuations also remain stable and it grows its revenue at a CAGR of 10% from fiscal 2024 (which ended in June) to fiscal 2050, it could generate $2.9 trillion in revenue by in the past year as its market capitalization reaches $26.5 trillion. .

So unless Microsoft’s growth slows significantly or antitrust regulators break up the company, it could likely be worth much more than Palantir by 2050. But as a smaller, faster-growing company, Palantir could have much higher growth potential than Microsoft. the next 26 years as it aggressively expands its AI-powered data mining platforms.