Palantir Technologies (NYSE: PLTR) has been one of the top-performing stocks on the market in 2024, jumping 115% as of this writing thanks to its accelerating growth, which is being driven by the fast-growing demand for the company’s software platforms by both federal customers and commercial clients.

Artificial intelligence (AI) has started playing a key role in the acceleration of Palantir’s growth of late. The good part is that Palantir is reportedly the top player in the AI software-platforms market as per market research company Forrester. This puts the company in a terrific position to ensure that its growth rate continues to pick up and hits stronger levels in the long run.

More importantly, a look at Palantir’s recent customer wins indicates that the company’s offerings continue to remain in hot demand, and that could pave the way for more stock upside in the future. In this article, I will take a closer look at how Palantir is capturing the lucrative AI software-platform market and check why that’s likely to lead to outstanding earnings growth in the long run.

Palantir’s AI juggernaut isn’t showing any signs of stopping

Palantir released its second-quarter 2024 results on Aug. 5. Its revenue shot up 27% year over year to $678 million, which was a big improvement over the 13% year-over-year increase in revenue it reported in the same quarter last year. Meanwhile, the company’s non-GAAP earnings shot up 80% from the year-ago quarter to $0.09 per share.

This impressive increase in Palantir’s top and bottom lines was a result of the robust growth in its customer base, an expansion in customer spending, as well as strong unit economics which is allowing it to generate more profit from each customer. For example, Palantir’s count of commercial customers in the U.S. increased by 83% year over year, but the total contract value from U.S. commercial customers increased at a much faster pace of 152%.

On the other hand, the company’s adjusted-operating margin increased to 37% in Q2 from 25% in the same quarter last year. This remarkable increase in Palantir’s margins explains why its bottom line shot up big time last quarter. The good news for Palantir investors is that it has been winning more contracts since reporting its results last month.

For example, Palantir’s Artificial Intelligence Platform (AIP) is set to be deployed by Wendy’s Quality Supply Chain Co-op (QSCC). Palantir points out that QSCC is the second-biggest purchasing cooperative in the quick-service restaurant industry and serves more than 6,400 Wendy’s locations in the U.S. and Canada. The cooperative will deploy AIP to “improve the scale and speed of decision-making” initially before using the platform for supply chain management and waste prevention.

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Earlier this month, Palantir announced that British oil and gas giant BP “will extend their strategic relationship and introduce new artificial intelligence capabilities with Palantir’s AIP software.” But this isn’t where Palantir’s recent customer announcements end as Nebraska Medicine, an academic health system, has struck a multimillion-dollar deal to deploy AIP.

And just recently, Palantir said that it has been awarded a $100 million contract by the Army Research Laboratory for using the former’s Maven Smart System, a platform that delivers AI capabilities to the Department of Defense.

The above developments indicate that Palantir’s AI juggernaut continues to roll, and it is unlikely to stop any time soon. That’s because market research company IDC expects the global AI platform-software market to grow at an annual pace of close to 41% through 2028, generating $153 billion in annual revenue at the end of the forecast period.

IDC adds that Palantir is among the top-five AI platform software providers, which means that the company is at the beginning of a massive growth curve considering that the AI platform-software market was worth just under $28 billion last year.

Outstanding earnings growth could translate into more stock-price upside

Palantir’s huge addressable market, its leading position in the AI software market, and strong unit economics that are translating into healthy margin gains explain why analysts are expecting the company’s earnings to grow at a phenomenal annual rate of 85% for the next five years. Even though such an aggressive earnings-growth rate seems ambitious, it won’t be surprising to see Palantir actually delivering the outstanding earnings growth that the market is expecting from it because of the points discussed above.

But even if the company clocks a relatively slower annual earnings-growth rate of 50% for the next five years, its bottom line could jump to $1.90 per share after five years (using its 2023 earnings of $0.25 per share as the base). The stock is currently trading at 87 times trailing earnings. Assuming it trades at a discounted 29 times forward earnings after five years (in line with the tech-laden Nasdaq-100 index being used as a proxy for tech stocks), its stock price could jump to $55.

That would be a 48% increase from current levels. But if Palantir manages to clock faster earnings growth and the market decides to reward it with a richer earnings multiple because of its outstanding growth, it could deliver much stronger gains. That’s why investors looking to add a hot growth stock to their portfolios would do well to buy Palantir before it soars higher following the tremendous gains that it has already delivered this year.

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

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