With its explosion on Tuesday following a blowout earnings report, Palantir (PLTR 9.79%) crossed a market cap of $200 billion for the first time. The company is now one of the most valuable software-as-a-service (SaaS) stocks in the world.

After its surge, the stock is now ahead of more established pure-play software companies such as Adobe, Shopify, and ServiceNow, closing Tuesday with a market cap of $236.5 billion.

Right now, the only American software company with a higher market cap than Palantir is Salesforce (CRM -4.92%), the leading customer relationship management software company and pioneer in cloud software.

Image source: Getty Images.

Palantir vs. Salesforce

Palantir and Salesforce are at different stages of their lifecycles. Salesforce's revenue growth has fallen to just single digits for the first time in its history.

Palantir, on the other hand, just saw its revenue growth accelerate for the sixth quarter in a row. Both companies have recently introduced new AI products, and Palantir's artificial intelligence platform (AIP) is driving rapid adoption among its U.S. commercial and government businesses.

The company, which started out as a defense tech firm and has since expanded to serve commercial businesses, seems to have little direct competition in AI. In its 10-K report, Palantir says, "We are fundamentally competing with the internal software development efforts of our potential customers," and added that its customers often come to it after trying to build their own data platforms.

On the earnings call, Chief Technology Officer Shyam Sankar said, "Palantir's real competition is a lack of accountability in government."

That strength helps explain why Palantir's revenue growth accelerated to 36% and its margins continue to expand. According to the company, its AIP has helped banks accelerate back-office processes from five days to less than three minutes.

Salesforce, on the other hand, introduced Agentforce, its agentic AI platform. While the new program has yet to have an an impact on Salesforce's bottom line, the company is well positioned to leverage the potential in AI with Agentforce, which has more than 150,000 customers. Moreover, customer relationship management lends itself to an AI assistant.

Size matters

There's another key difference between Palantir and Salesforce. Even though Salesforce's market cap is now less than 50% higher than Palantir's, there are significant differences in the sizes of their underlying businesses.

Salesforce's revenue is still more than 10 times Palantir's:

CRM Revenue (TTM) data by YCharts

That could be an ominous sign for Palantir investors.

There's no hard ceiling on size in the software sector, and AI could drive demand for software even higher, but there are also growth limitations in any business.

The preceding chart also shows that Palantir is still just a fraction of Salesforce's size, meaning that Palantir trades at an especially lofty premium, and it may need to grow into that valuation before it overtakes Salesforce.

It's also a good reminder that the software industry is only so big, especially for a company like Palantir that has struggled to grow outside the United States.

Will Palantir be the No. 1 software stock?

Palantir could overtake Salesforce for the most valuable software company, but investors shouldn't confuse valuation with the underlying size of the business. The revenue gap between the two companies shows that Palantir's business could still grow a lot without a gain in the stock if its valuation eventually mirrors that of Salesforce.

Palantir is growing significantly faster than Salesforce and has a clear set of competitive advantages in AI, but its valuation will eventually matter. Unless the company can become something more than a software stock, its ceiling may be closer than investors seem to believe.