Software company Palantir Technologies (PLTR 8.61%) has been in the spotlight since it went public in 2020. The stock has soared in 2023 on investor optimism for artificial intelligence (AI) and what it could do for the global economy.

After hitting $20 per share, the stock has cooled, dropping 25% to around $15 today. While Palantir is still up 136% since January, investors shouldn't get too cute. The current dip could be an excellent buying opportunity for the long-term investor.

The company's prospects and today's valuation make it a stock that should headline your watch list. I'll detail why below. 

Customer expansion can drive consistent growth

Palantir sells custom data-analytics software to government and commercial entities. Using its platforms, including Foundry, Gotham, Apollo, and AIP, it helps companies analyze data to optimize a process, make decisions, or predict outcomes in real time.

The U.S. government supported Palantir in its early years, and it remains the company's largest customer today, but the business is rapidly growing in the private sector.

A tough economy, with companies spending more cautiously, has stunted Palantir's revenue growth over the past two years. But its customer count has grown from 277 in the first quarter last year to 421 in the second quarter of 2023. CEO Alex Karp said that its recently launched AIP platform, designed to integrate large language models into customers' private data, is seeing unprecedented demand.

PLTR Revenue (Quarterly YoY Growth) Chart

PLTR revenue (quarterly YoY growth) data by YCharts; YoY = year over year.

Revenue growth could accelerate once the economy improves, recently acquired customers expand their usage, and AI applications begin impacting Palantir's bottom line. The company must walk the walk, but it seems that predictions for the end of its growth could be very premature.

The earnings flywheel is spinning up

Every young, growing business has the same goal: for revenue to grow faster than expenses so the company turns a profit. You can see below that Palantir's key spending categories -- including research and development, marketing, and general and administrative costs -- have all declined as a percentage of revenue.

Not by coincidence, the company is now profitable under generally accepted accounting principles (GAAP), earning $0.01 per share in the second quarter, its third consecutive quarterly GAAP profit. Palantir generated $375 million in free cash flow over the last four quarters. However, GAAP earnings also include its stock-based compensation, which had kept Palantir's bottom line red for some time.

PLTR R&D to Revenue (TTM) Chart

PLTR R&D to revenue (TTM) data by YCharts; TTM = trailing 12 months.

Investors are seeing Palantir at a key financial pivot. Earnings growth should dramatically accelerate as revenue keeps increasing. Analysts believe earnings per share (EPS) will grow at an annual average of 66%, which sets up investors to witness a stock rapidly growing into its valuation.

A table-pounding value despite 2023's epic run

In fact, analysts believe 2023 EPS will come in at $0.22, valuing the stock at a price-to-earnings (P/E) ratio of 73 today. That seems expensive at face value, but potential 65% earnings growth means shares have a price/earnings-to-growth (PEG) ratio of just 1.3.

I like seeing PEG ratios under 1.5, so you could argue that Palantir's stock is attractively valued today because of the growth the company could see. Yes, it must ultimately deliver such growth, but its strong customer growth and artificial intelligence opportunities in its AIP platform paint a promising future.

Investors looking to own the stock shouldn't let 2023's strong run put them off. The recent dip has put shares at a solid entry point.