Recent data suggests that Palantir Technologies is making significant strides as the adoption of artificial intelligence (AI) software surges. According to market research from Roots Analysis, the AI software market is projected to generate an astounding $5.2 trillion in annual revenue by 2035. This indicates that Palantir is just beginning to tap into a colossal market opportunity that could sustain impressive growth over the next decade.

In the fourth quarter of 2024, Palantir reported a remarkable 43% year-over-year increase in its customer base. This surge is further underscored by a notable uptick in larger contracts; specifically, the number of deals exceeding $1 million rose by 25% compared to the previous year. More significantly, contracts valued at $5 million or more increased by a staggering 57% year-over-year, showcasing Palantir's ability to engage existing customers and attract new ones.

The trajectory of Palantirs growth has notably accelerated since the introduction of its Artificial Intelligence Platform (AIP), launched two years ago with the goal of empowering both commercial and government clients to develop and implement AI applications tailored to their specific needs. The platforms success is evident as it has led to impressive productivity gains for AIP users, thus significantly expanding Palantir's clientele and increasing expenditures from current customers.

However, recent trends in the stock market have led to a sharp decline in Palantirs stock price, which may attract growth-oriented investors looking for opportunities. An examination of the factors contributing to Palantir's fluctuations over the next decade reveals a complex landscape.

The Nasdaq Composite index has experienced a decline of over 20% in early 2025, prompting investors to take profits on high-performing stocks, including Palantir. Although the beginning of the year saw Palantirs stock rise sharply, it has since plummeted by 38% from its 52-week peak reached on February 18, primarily influenced by external factors beyond the company's control. Concerns over an economic downturn and the ramifications of tariff-induced trade tensions have heightened market volatility.

Palantir Technologies, which went public in September 2020, has seen its shares appreciate an impressive 714% since its debut, with most gains occurring after the launch of its AI software platform in April 2023. Third-party market research firms such as IDC and Forrester have consistently ranked Palantir as a leader in AI software platforms, which explains the influx of customers migrating to its AIP in search of enhanced efficiencies and cost reductions.

During the fourth quarter of 2024, Palantir reported a significant 56% increase year-over-year in its total contract value, reaching $1.8 billion. This growth has considerably bolstered the companys revenue pipeline, with a 40% year-over-year increase in remaining deal value (RDV) in Q4, totaling $5.4 billion. RDV is indicative of the total value of contracts Palantir is committed to fulfilling, and its growth rate outpaced the companys revenue growth of 36% for the quarter.

Looking ahead, Palantir is poised for stronger growth, driven by an expanding customer base and increased spending from existing clients. This trend is vital for improving Palantir's unit economics, which measures profitability per customer. As the company continues to secure larger contracts, it is likely to see an enhancement in its margin profile.

However, as investors consider entering the stock, concerns over Palantirs high valuation may pose challenges. Currently, the stock trades at 66 times sales and 145 times forward earnings, making it more susceptible to sell-offs. The recent market sentiment suggests that further declines in stock price could occur, presenting a potential buying opportunity for those willing to wait for a more favorable valuation.

Interestingly, Palantir's growth trajectory is outpacing the anticipated growth of the global AI software market, which is projected to expand at a compound annual growth rate (CAGR) of 31% through 2035. Palantir's revenue growth of 36%, coupled with improvements in its remaining performance obligations (RPO), indicates a strong foundation for sustained growth as customer productivity gains through AIP continue.

For prospective investors, it's crucial to weigh the decision to invest in Palantir Technologies. Although this stock may not currently be featured among the top recommendations from the Motley Fool Stock Advisor, historical data reveals that strategic investments in identified stocks have yielded exceptional returns. Investors should remain vigilant and consider the long-term prospects of Palantir as it navigates the evolving AI landscape.

Before making any investment decisions, individuals should thoroughly analyze the financial landscape and consider the implications of market trends on the potential success of Palantir Technologies in the coming years.

Disclaimer: Harsh Chauhan holds no positions in any stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. Please refer to the disclosure policy for more information.