One of the breakout stars of the artificial intelligence (AI) revolution is data analytics software company Palantir Technologies (PLTR 1.86%). Since its initial public offering in late 2020, Palantir shares have generated a 488% return as of market close on Nov. 7.
But to be honest, Palantir's journey hasn't been without some challenges and drama along the way. Despite a successful public debut a few years ago, shares of Palantir cratered throughout much of 2022 on the backdrop of a tough macroeconomy. With shares trading for just $6 at the beginning of 2023, Palantir's outlook didn't look bright. The company had virtually no presence in the private sector, and growth from its government contracting business was decelerating.
However, the launch of the Palantir Artificial Intelligence Platform (AIP) in April 2023 sparked a comeback that even Rocky would appreciate.
Two of Palantir's earliest bulls on Wall Street -- Dan Ives of Wedbush Securities and Mariana Perez Mora of Bank of America -- have placed price targets of $57 and $55 on Palantir, respectively. AI has become a catalyst of epic proportions for Palantir, and as of the time of this writing, shares are trading at all-time highs of roughly $56.
While Palantir's current share price doesn't leave a ton of room for percentage growth relative to targets put forth by Ives and Perez Mora, it's more important for investors to understand the reasons behind these analyst upgrades and extrapolate what these themes could suggest for Palantir's future.
NASDAQ: PLTR
Key Data Points
Let the good times roll
Palantir CEO Alex Karp began his third-quarter shareholder letter with a brief statement declaring "this is still only the beginning."
That's a pretty bold call when your company just posted 30% revenue growth year over year, closed over 100 deals worth at least $1 million, and is minting positive net income and free cash flow on a consistent basis. At some point, you'd expect the momentum to slow down.
But apparently, Karp, Ives, and Perez Mora are calling for even more growth. Let's dig into what's driving these optimistic outlooks and explore how Palantir's AI journey is unfolding.
Image source: Getty Images.
Why Wall Street is so bullish
One of the ways Palantir has been able to separate itself from the competition since launching AIP is through a unique lead generation strategy. Namely, Palantir hosts immersive seminars called "boot camps," during which prospective customers can demo the company's software suites. This hands-on approach helps leads actually identify a use case around AI and understand how Palantir's software can help ease their pain points.
Image source: Palantir Investor Relations.
The growth trends depicted above showcase how Palantir's boot camps have helped the company increase its customer roster while simultaneously diversifying its revenue base, which is underscored by a swift penetration of the private sector.
However, as Karp and Wall Street suggest, there are many reasons to believe that this growth is still in its early stages.
For starters, Palantir has been quietly signing more deals related to the U.S. Military's AI efforts. Although government contracting is a fairly lumpy business, Palantir is demonstrating that the defense sector is an important and evolving pocket of the AI landscape -- an opportunity I'd encourage investors not to sleep on.
Moreover, the company has struck a number of strategic alliances this year with Microsoft, Oracle, Meta Platforms, and Amazon that have yet to bear fruit.
Is Palantir stock a buy right now?
The chart below benchmarks Palantir against a cohort of leading software-as-a-service (SaaS) companies on a price-to-sales (P/S) basis. The obvious takeaway from the analysis below is that Palantir is the most expensive stock among this peer set. But on a more subtle note, Palantir's price action has witnessed meaningful valuation expansion over the last few months in particular.
PLTR PS Ratio data by YCharts
Given the momentum fueling Palantir stock right now, I'm not surprised to see shares reach the price targets put forth by Ives and Perez Mora. I think investors should be less concerned about specific prices at this stage and more focused on the long-term narrative surrounding Palantir.
Defense tech is still largely an untapped market, and many of Palantir's partnerships with big tech aren't operating at scale yet. I think as time goes on, customer adoption of AIP will continue to accelerate across the company's commercial and public sector operations as more use cases are discovered through AIP. Furthermore, the relationships with many of AI's most influential players have made me optimistic about Palantir's role in the future of AI.
While I think the stock is pricey right now, I see further gains ahead and am aligned with the outlook that Palantir's journey is still beginning.
