A big driver of the stock market's recovery this year is excitement over recent advances in artificial intelligence (AI), which captivated Wall Street and Main Street alike. The debut of ChatGPT and other next-generation chatbots highlighted how quickly AI is evolving and helped demonstrate the massive potential use cases.
Generative AI can be used to create original content, summarize books and scientific papers, conduct internet searches, answer questions, and even write code -- and researchers are still discovering new potential applications. This is expected to result in a wave of productivity increases, and the potential is vast. Two of the more conservative forecasts come from investment banks Morgan Stanley and Goldman Sachs, which expect these productivity gains to add $6 trillion and $7 trillion annually to the economy, respectively, by the end of the decade.
Veteran Wedbush analyst Dan Ives said he thinks Palantir Technologies (PLTR 3.73%) is one of the undiscovered gems in this AI gold rush, calling the company the "Messi of AI."
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Messi: The greatest player ever?
Ives is, of course, referring to Lionel Messi, the Argentinian soccer sensation. Messi is widely acknowledged as one of the world's most accomplished soccer (called football in other parts of the world) players.
Messi was awarded the Ballon d'Or -- the sport's most valuable and prestigious individual award -- a record seven times, and he led Team Argentina to victory in last year's Fédération Internationale de Football Association (FIFA) World Cup in dramatic fashion. Messi was also awarded the tournament's Golden Ball as its best player -- the only player to ever receive the award twice. Messi's FIFA wins were just the latest accomplishments in a long and distinguished career that has many calling him the greatest men's soccer player of all time.
Palantir is working to be the "Messi of AI"
Ives initiated analyst coverage of Palantir on Friday with an outperform (buy) rating and issued a $25 price target, which suggested a 55% potential upside for investors compared to Thursday's closing price. Ives sent out a note to his newsletter subscribers, calling Palantir "the Messi of AI on the golden track to success." In the subscriber note, he opines that the company "has built an AI fortress that is unmatched and poised to be a major player in this AI revolution over the next decade."
In a follow-up interview with CNBC's The Exchange, Ives laid out his bull case, saying, "There's a golden path right now for [Palantir] to monetize what we view as a potentially $1 trillion market opportunity, and investors still have not recognized what this golden use could be." Ives further states that for an enterprise CIO looking to adopt AI, "Palantir is potentially the first call."
And while many companies are only now joining the AI revolution, Palantir has a 20-year track record with the technology. The company has done work for the CIA, FBI, National Security Agency, and many other agencies within the U.S. government, using these sophisticated algorithms to track terrorists.
Ives says that for enterprise businesses concerned about their data security, "there's no better reference" than the top-secret work Palantir has done for the government and its allies, and companies can "sleep well at night when Palantir has your data."
Ives estimates that 8% to 10% of enterprise budgets next year will be spent on AI, giving Palantir a large, growing opportunity to tap.
Is it too late to buy Palantir stock?
Palantir stock has been on fire this year, up 209% since the start of 2023, but it's important to put that move into context. Palantir plunged 65% last year and overall ended 2022 down 76% from its peak.
Its stunning move so far this year resulted in a commensurate uptick in its valuation, which will no doubt send value investors running for cover. Palantir is currently selling for 15 times next year's sales, which seems outrageous at first glance. Still, Ives notes that his $25 price target represents about 10 times his fiscal 2027 revenue estimates of $5 billion -- a vast improvement from Palantir's 2022 revenue of $1.9 billion.
I've long believed Palantir would successfully navigate the transition from government contracts to enterprise business, and I have been recommending the stock as a buy for some time. I'm also a longtime Palantir shareholder, having purchased shares just months after the company's IPO in late 2020.
Messi is obviously one of the greatest players in soccer history and by invoking his name, Ives likely believes that Palantir can achieve similar greatness. While some might fear it's too late to invest in Palantir, the stock -- like the AI revolution -- is just getting started.
