This artificial intelligence (AI) software stock is up 488% since its IPO and still has significant upside potential, according to two Wall Street analysts.

One of the breakthrough stars of the artificial intelligence (AI) revolution is data analytics software company Palantir Technologies. (PLTR -0.65%). Since its initial public offering at the end of 2020, Palantir stock has generated a return of 488% as of market close on November 7th.

But let’s be honest, Palantir’s journey hasn’t been without some challenges and drama along the way. Despite successfully going public several years ago, Palantir stock has tumbled through much of 2022 due to challenging macroeconomic conditions. At the beginning of 2023, Palantir’s outlook was not bright, with the stock trading at just $6. The company had virtually no presence in the private sector, and growth from government contracting was slowing.

But the April 2023 launch of the Palantir Artificial Intelligence Platform (AIP) sparked a resurgence that Rocky would approve of.

Two of Wall Street’s early bulls on Palantir, Wedbush Securities’ Dan Ives and Bank of America’s Mariana Perez Mora, have price targets for Palantir at $57 and $55, respectively. It is set. AI has been a catalyst for incredible growth for Palantir, with the stock trading at an all-time high of around $56 as of this writing.

While Palantir’s current stock price doesn’t leave much room for growth relative to the targets laid out by Ives and Perez-Mora, it’s still helpful for investors to understand the reasoning behind the analyst’s upgrade. However, it is more important to speculate on what these themes might imply for Palantir’s future. .

Let’s have fun

Palantir CEO Alex Karp opened his third-quarter letter to shareholders with a short statement declaring, “This is just the beginning.”

If your company has 30% year-over-year revenue growth, closes 100 or more deals worth at least $1 million, and consistently generates positive net income and free cash flow, this is It’s a pretty bold decision. At some point, you would expect that momentum to slow down.

However, it appears Karp, Ives, and Perez-Mola are looking for more growth. Let’s dig into what’s driving this optimistic outlook and explore how Palantir’s AI journey is unfolding.

Image source: Getty Images.

Why is Wall Street so bullish?

Since the launch of AIP, one of the ways Palantir has been able to differentiate itself from its competitors is through its unique lead generation strategy. In other words, Palantir hosts immersive seminars called “boot camps” during which prospective customers can demo the company’s software suite. This hands-on approach helps leads identify real-world AI use cases and understand how Palantir’s software can help alleviate their pain points.

Image source: Palantir Investor Relations.

The growth trends shown above demonstrate how Palantir’s bootcamp helped the company grow its customer roster and simultaneously diversify its revenue base, highlighted by the rapid penetration of the private sector. I am.

But as Karp and Wall Street suggest, there are many reasons to believe this growth is still in its infancy.

First, Palantir continues to quietly award additional contracts related to the U.S. military’s AI efforts. Government contracting is a tricky business, but Palantir has demonstrated that the defense sector is an important and evolving part of the AI ​​space, and we encourage investors to seize the opportunity.

Additionally, the company has entered into a number of strategic alliances with Microsoft, Oracle, Metaplatform, and Amazon this year, but none have yet come to fruition.

Should you buy Palantir stock now?

The chart below benchmarks Palantir against a group of leading SaaS (Software-as-a-Service) companies on a price-to-sales (P/S) basis. What’s clear from the analysis below is that Palantir is the most expensive stock among its peers. But on a more subtle note, Palantir’s price movement has seen a significant expansion in valuation, particularly in recent months.

PLTR PS Ratio Data by YCharts

Given the momentum currently driving Palantir stock, I wouldn’t be surprised if the stock hits the target price laid out by Ives and Perez-Mora. I think investors should worry less about the specific price at this stage and focus more on the long-term story surrounding Palantir.

Defense technology is still a largely untapped market, and many of Palantir’s partnerships with major technology companies have yet to be deployed at scale. Over time, I believe 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. Additionally, my relationships with many of AI’s most influential players make me optimistic about Palantir’s role in the future of AI.

While I think the current stock price is overvalued, I see further upside in the future, consistent with my view that Palantir’s journey is just beginning.