Defense stock and artificial intelligence company Palantir Technologies (PLTR +1.96%) defied today's market downturn to rise 3% through 9:50 a.m. ET Thursday morning.
You can thank Goldman Sachs for that.
Image source: The Motley Fool.
Goldman Sachs loves Palantir stock
Goldman Sachs analyst Gabriela Borges upgraded Palantir stock to "buy" with a $230 price target, as StreetInsider.com reports today. The rapidly rising growth stock, says Borges, did $6.2 billion in revenue over the last 12 months, has already reached an annual recurring revenue (ARR) of $8 billion, and is growing revenue at 100% per year.
Investors are valuing Palantir stock at 80 times trailing sales -- and twice that for price-to-earnings. This gives the stock a PEG ratio of about 1.6x, which is challenging, but not entirely indefensible, assuming Palantir can maintain its growth rate.
NASDAQ: PLTR
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What's next for Palantir stock
But can Palantir keep growing sales at 100% per year? Borges argues it can, because the artificial intelligence market is approaching a new "step function" in which sovereign AI systems and "bespoke applications" (both built and owned entirely by their builders, rather than rented from other companies) provide a new market to grow in. Borges sees Palantir as a leading force in this market as it deploys "artificial intelligence forward-deployed engineers," or AI FDEs -- software agents built by Palantir -- to help build these systems.
The analyst further points out that Palantir stock is cheaper on a price-to-free cash flow basis than on P/E alone -- which is true. Free cash flow at the company runs about 10% ahead of reported net income. On an enterprise value-to-free cash flow-to-growth basis, Palantir scores closer to a 1.4x ratio.
Palantir still isn't a cheap stock, but Goldman's right: It's at least a little cheaper than it looks.
