The year 2020 is on track to be the busiest for the U.S. IPO market since the peak of the dot-com boom in 2000. In the past month alone, hot tech IPOs like Snowflake (SNOW -0.70%) and JFrog (FROG 1.32%) attracted stampedes of bullish investors.

I only nibbled on one of those tech IPOs -- Palantir Technologies (PLTR -0.25%) -- during the feeding frenzy. Let me explain why Palantir is a potential winner, and why I'll be looking for opportunities to buy more shares throughout October.

Soldiers check data on a computer screen.

Image source: Getty Images.

What does Palantir do?

Palantir, which is named after the seeing stones in The Lord of the Rings, is a data mining company that serves 125 customers across the U.S. government and private sector.

Palantir's Gotham platform, which it believes will become the "default" operating system of the U.S. government, helps the CIA, the FBI, the Department of Defense, ICE, and other agencies gather data on individuals from various sources. Gotham's AI system, Ava, crunches that data into actionable intelligence.

Palantir's Foundry platform provides similar data mining tools to large companies. Here's how those two businesses fared in 2019 and the first half of 2020:

Revenue

Fiscal Year 2019

Growth (YOY)

First Half 2020

Growth (YOY)

Gotham

$345.5 million

35%

$257.7 million

76%

Foundry

$397.0 million

17%

$223.5 million

27%

Total

$742.6 million

25%

$481.2 million

49%

Note: YOY = year over year. Source: Palantir.

Gotham's growth accelerated significantly after it won an $800 million contract from the U.S. Army last year. Foundry's growth also accelerated as its large customers ramped up their usage of data mining tools.

As a result, Palantir's average revenue per customer grew 8% to $5.6 million in 2019. Its average revenue from its top 20 customers rose 14% to $24.8 million. Palantir still has plenty of room to expand in the enterprise market, since it only serves six of the Fortune 100 companies so far.

Accelerating growth at a reasonable price

Palantir believes its full-year revenue will rise 42% to $1.06 billion this year. As of this writing, Palantir sports a valuation of $20.8 billion, which values it at just under 20 times this year's sales.

A soldier checks data on a tablet.

Image source: Getty Images.

That valuation is much lower than those of recent software IPOs like Snowflake and JFrog. If Snowflake maintains its current growth rate and increases its revenue 130% this year, its stock would still be valued at over 110 times that estimate. If JFrog generates 50% revenue growth in 2020, it would still be trading at 45 times this year's sales.

Moreover, both Snowflake and JFrog posted decelerating revenue growth in the first half of 2020 as Palantir's growth accelerated. Palantir's cooler valuation can likely be attributed to three factors.

First, Palantir sold its shares in a direct listing, which allowed existing shareholders to sell their shares to investors without raising any new capital for the company, instead of a traditional IPO, which prevented underwriting banks from marking up the initial price.

Second, Palantir's controversial reputation -- especially its role in tracking down and deporting undocumented immigrants -- likely prevented some investors from biting. Lastly, some investors might believe a victory by Democrat Joe Biden in November's presidential election would hurt Palantir's government business -- which doesn't make much sense, since the company previously secured contracts under the Obama Administration.

Nonetheless, the fundamentals indicate that Palantir remains cheaper than many other recent tech IPOs, and its government contracts should remain well-insulated from macro headwinds like the U.S.-China trade war and COVID-19.

Narrowing losses

Palantir still isn't profitable, but its bottom line is headed in the right direction. Its net loss narrowed slightly from $580 million in 2018 to $579.6 million in 2019, but narrowed more significantly year-over-year from $280.5 million to $164.7 million in the first half of 2020.

It won't break even anytime soon, but it was still sitting on $1.5 billion in cash and equivalents at the end of June. That cash cushion, along with its accelerating revenue growth, should afford Palantir plenty of time to pave a path toward profitability.

The road ahead

Palantir's sound fundamentals, its sticky customer base, its insulation from macro headwinds, and its reasonable valuation all make it a top IPO to keep an eye on in October. The stock might remain volatile and its controversial practices might repel some investors, but I believe Palantir could be a long-term winner.