What happened

Palantir Technologies (PLTR -6.73%), a controversial data analytics company, made its public debut on Wednesday, and its shares showed an impressive 48% gain as of 2:30 p.m. EST. That percentage is a little deceiving, but without doubt, Palantir is having a terrific first day on Wall Street.

So what

Palantir began trading not through a traditional initial public offering (IPO) but rather via a direct listing. That means there was no formal offering price for the shares, but rather existing shares on Wednesday began trading on the New York Stock Exchange.

Three young people working at a secured workstation.

Image source: Getty Images.

Absent an IPO price, the Exchange on Tuesday night set a reference price for the shares of $7.25 apiece. The Exchange in a statement noted the $7.25 price was not an offering price, but it is the best we have to go on in a direct offering.

Palantir shares began trading at around 1:30 p.m. EST at $10 apiece and as of 2:30 p.m. EST were up to $10.75. Based on the reference price, that's a 48% gain, though it's worth noting no stock actually traded hands at $7.25.

Regardless, it's a good day for Palantir as the market is valuing the company at $21.7 billion. That's up from the $20.3 billion valuation Palantir achieved in 2015 when it last raised money privately. And the trading price is well above the average third-quarter, private-market, share-transaction price of $6.45 prior to the listing.

Now what

The question for investors is where Palantir shares will go from here. This is a solid business with strong relationships with U.S. spy and immigration agencies, but I'm in no hurry to jump in.

For one, Palantir is hoping to hit $1 billion in revenue in 2020. That means the company's current valuation is about 20 times sales, well above the multiple assigned to most defense companies. The company's data analytics strengths arguably deserve a premium, but it remains to be seen how much of a premium.

IPO stocks tend to be volatile in their first few weeks of trading, and Palantir likely will be no exception. With the strong debut, additional holders from the company's private offerings might be tempted to cash out part of their holding, which could drive down prices.

As with most new listings, there is a lot we don't know in the opening days of trading. My preference is to stay on the sidelines for now and watch how things develop.