Where will Palantir be in 3 years?

Palantirhis (PLTR 0.19%) The stock price has risen 162% over the past year as the company has benefited from demand for its artificial intelligence (AI) technology. But those gains have left many investors wondering if there’s still room for Palantir to lead and where the company might be in a few years.

Here’s what’s going right with the company right now, and where Palantir could be in three years.

What’s going well for Palantir

If you’ve been keeping up with Palantir, then you know that for years the company has been a leading player in the AI ​​software space, with a specialty in the government sector. Palantir’s analytics systems have helped military and intelligence organizations use large amounts of data.

Sales in Palantir’s government segment rose 24% in the second quarter to $278 million. But Palantir has expanded its AI reach into the commercial market in recent years, and the move is already paying off. Revenue from its commercial segment rose 33% to $307 million in the quarter and now accounts for 45% of total sales.

Management says its US commercial sales are expected to rise 47% for the full year to $672 million, a substantial increase and a good indicator that its commercial services are resonating with customers.

If all that weren’t good enough, Palantir is also profitable and reported net income of $135.6 million in the quarter, with an impressive 20% profit margin. Additionally, the company only has $1.1 billion in debt.

How it could benefit Palantir over the next three years

Palantir bulls point to the company’s current growth and rapidly expanding AI market as reasons for optimism. For example, analysts expect Palantir’s sales to grow about 25% this year and 21% in 2025, with one analyst projecting the company’s sales to reach $5 billion in 2027 — more than double this year’s sales last.

That confidence in Palantir’s potential growth is fueled by an estimated $1 trillion in artificial intelligence spending over the next few years, according to the data. Goldman Sachs estimates.

I think Palantir is well positioned to benefit from at least some of that spending. Companies of all shapes and sizes are looking to establish themselves as AI leaders, or at least competent in AI, and that will lead to a massive increase in spending to keep up with rivals.

Is Palantir a buy right now?

I think opening a position in Palantir could pay off in the coming years as AI investments intensify and the company taps into an expanding customer base. However, investors should be aware that the company’s shares are expensive, with its stock carrying a forward price-to-earnings ratio of 90 right now.

That means cautious investors may want to wait until there’s a pullback in Palantir stock to pick up shares or find AI stock at a cheaper price.