Could Palantir Become a Trillion Dollar Company?
Could Palantir become a Trillion dollar company?
Is it possible that Palantir, a software based data company, could get to a market cap of $1,000,000,000,000?
Currently on the US stock market there are three companies with Market Caps over $1T; Apple ($AAPL), Microsoft ($MSFT), and Google ($GOOG). At least as of December 19th 2022.
How on earth could Palantir get to a valuation to compete with these three companies you might be asking?
And how long would this possibly take?
We all know that as time moves on, market caps increase. At one point it was unheard of to have a market cap over $1T and now apple is more than double that.
Tesla at one point was in the trillion dollar club. A company which is set to produce about $12B in Free Cash Flow (FCF) had a market cap with four commas in it. Boasting a price to FCF (P/FCF) north of 100 for much of the last two years.
The difference between these companies is that Palantir is B2B and the top companies in the world are all B2C businesses. This does affect their market cap, because people are willing to pay a higher premium, a higher multiple behind things that they can physically see or touch. Seeing everyone buy Tesla shares and hearing Elon Musk claim one day Tesla will be worth more than Apple and Saudi Aramco combined, generates a lot of “hype” giving this “Hype Multiple”.
Could Palantir warrant one of these “Hype Multiples”?
Alex Karp doesn't have the 120 million followers on social media that Elon Musk has, so its not as simple for Karp to generate that excitement around Palantir like Elon tweeting a picture of the new Cyber Truck or Robot will do.
However, there are other companies in a similar position, shocking I know.
Salesforce, a software based company, for the last three years has averaged a P/FCF ratio over 150!
As it appears, people are willing to pay extremely high valuation multiples for companies which are profitable in the software as a service segment of business. This makes sense given the low overhang and potential for very high margins.
By that logic, it could be possible that Palantir was able to pull in Free Cash Flow of $10B, and the market was in a place to recognize that feat. Perhaps they would assign a P/FCF of 100 putting their valuation over $1T.
Of course it isn't that simple, Palantir would need the growth to warrant that high of a multiple.
Tesla is growing 50% yearly to get that type of valuation metric, Salesforce is growing 24%.
Palantir would need to grow at an outstanding rate, not only to get to the $10B in FCF, but also to warrant that extremely high price multiple of 100.
As it stands, Palantir made $320M in Free Cash Flow in 2021, about 1/30th the amount proposed here in this article.
There are an overwhelming number of assumptions made here for Palantir to get to $1T market cap.
Including the fact that the S&P500 usually trades at a price to Free Cash Flow of 22 so assuming Palantir could reach one of 100 is a bit unreliable.
Is it possible Palantir reaches $1T?
Especially if we re-entered the frothy style market we had gone into in 2020/2021. A LOT of things would have to go right to get there, including a complete 180* turn on the existing Stock Based Compensation. That would need to end and ideally they would be buying back shares. Personally that isn't in my bullish thesis, especially not for this decade.
What do you think? Is $1,000,000,000,000 a reasonable value for Palantir?
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