The rise of artificial intelligence (AI) has become a generational bellwether for companies across the technology sector. What might not be so surprising, however, is that megacaps have been the biggest beneficiaries of the AI revolution so far.
Companies such as Microsoft, Meta Platforms, Alphabet, and Amazon were already huge before the AI boom. Given their level of influence and ability to mint profits, it's not shocking to see these companies pivot swiftly into the AI realm.
What investors probably didn't anticipate is that some under-the-radar companies would blossom into industry leaders seemingly overnight. I can't think of a better example of this phenomenon than Palantir Technologies (PLTR +1.25%).
Over the last three years, shares of the data analytics specialist have gained more than 2,400%, making Palantir one of the most valuable technology companies in the world.
Earlier this week, sell-side analyst Tyler Radke of Citigroup upgraded his outlook on the stock, increasing his price target from $210 to $235. Radke's forecast implies 34% upside to the current share price as of this writing (Jan. 14).
Let's dig into the tailwinds Citi is modeling and assess how this stacks up relative to the rest of Wall Street. Is now a good time to buy Palantir stock? Read on to find out.
Image source: Getty Images.
Why is Citi bullish on Palantir?
Palantir develops a suite of enterprise software tools called Foundry, Gotham, and Apollo. Together, these tools are stitched together to form the company's broader Artificial Intelligence Platform (AIP) marketed toward businesses and government agencies.
One thing that makes its business model particularly lucrative is its ability to lock in customers through multiyear contracts. Each quarter when Palantir publishes earnings, smart investors aren't just looking at the company's reported revenue and profit.
Rather, an important metric to focus on is remaining performance obligations (RPOs). This measures the dollar value of contracted revenue Palantir has booked but not yet recognized, providing investors with a preview of future growth.
Radke cites the company's $3.6 billion in RPOs (up 199% year over year) just in the U.S. commercial segment as a key driver of his upside narrative.
He is also confident that the U.S. government -- particularly the Department of Defense -- will continue deploying AI services across its operations. Under his analysis, Palantir could command at least 51% growth in its public sector business in 2026 -- with upside potential pointing toward 70%.
A growth forecast of this magnitude may seem overzealous, but it might actually be realistic. In 2025, Palantir inked a number of meaningful contracts with the military:
- An enterprise service agreement with the U.S. Army worth up to $10 billion over the next decade.
- Expansion of its Maven Smart System (MSS) agreement by $795 million, bringing the total deal value to $1.3 billion.
- A partnership with allied nations, particularly deploying the MSS platform with members of NATO.
- A three-year renewal with France's intelligence arm, DGSI.
When you take into consideration that Palantir is partnering with the best AI developers in the private sector, including Nvidia, in combination with the Pentagon doubling down on its AI investments, the company's prospects certainly look robust.
While it may be hard to argue against Palantir's growth narrative, a more subtle question begins to emerge as it relates to the company's valuation profile.
NASDAQ: PLTR
Key Data Points
Can Palantir keep its rally going in 2026?
When OpenAI commercially released ChatGPT at the end of November 2022, Palantir's market cap was $12.5 billion. Today, the company is worth more than $400 billion -- greater than the combined sum of Salesforce and Adobe.
PLTR PS Ratio, data by YCharts; PS = price to sales.
Throughout the AI revolution, the company has experienced more pronounced valuation expansion compared to any of its high-growth peers in the software space. Palantir's price-to-sales ratio (P/S) of 115 is a clear premium over other industry leaders -- one that I do not think is sustainable in the long run.
A high-conviction play on AI software, but investors still need to use smart judgment
While I do not encourage trying to time the market, I also do not think it's wise to blindly follow the crowd into momentum stocks. As a Palantir bull myself, I am optimistic about the company's long-term potential. However, I'm also a realist.
I would not be surprised if it reaches a share price of $200 or more in the near term. But should the market experience a drawdown this year -- or at any point, frankly -- volatile growth stocks such as Palantir will almost certainly be the first to experience heavy selling pressure.
Among the 25 sell-side analysts who cover the stock, 17 rate it a hold. The primary concern on Wall Street, one which I share, is its frothy valuation. So while I do think Palantir will be a winner in the AI revolution in the long run, I also think more-reasonable price points will come to light for investors who can exercise prudence and patience.
