Can Palantir Stock Soar 450% to Hit $1 Trillion? A Wall Street Analyst Has a Surprising Answer.

Palantir Technologies (NASDAQ: PLTR) is currently the best-performing stock in the S&P 500 (SNPINDEX: ^GSPC) in 2024. Shares have advanced 360% year to date because of a series of increasingly stronger financial reports driven by demand for its new artificial intelligence (AI) platform.

Many analysts have been bearish the whole way up, but Dan Ives at Wedbush Securities has been consistently bullish. He has touted Palantir as the next Oracle, and the best pure-play AI name. But his most surprising take is that Palantir may eventually be a trillion-dollar company if it continues to execute.

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Ives made that comment during an interview with Schwab Network in November, and it implies 450% upside from the current market value of $180 billion. Here's what investors should know about Palantir.

What sets Palantir apart from competing software companies

Palantir sells analytics software that helps enterprises make sense of complex information. Its core platforms, Gotham and Foundry, integrate data sets and machine learning models into an ontology, a framework that connects digital information to real-world objects. Users can query the ontology with analytical applications to gain insights that improves decision-making.

Last year, Palantir supercharged its core software with a new artificial intelligence (AI) platform called AIP. It adds support for large language models to Gotham and Foundry, letting users engage the platforms with natural language. For example, an enterprise that uses Foundry to monitor its supply chain could prompt the platform to flag potential issues and recommend solutions.

Earlier this year, CEO Alex Karp explained in a CNBC interview what sets Palantir apart from its competitors. In a nutshell, he believes the software is built differently, works better, and creates more value for customers than other products on the market. When Karp says the software is built differently, he is referring to the ontology-centric architecture. That is what lets businesses pull actionable insights from large volumes of raw data.

Palantir also revamped its go-to-market strategy around its AI platform. The company runs AIP boot camps, which are interactive workshops where prospective customers learn to use the product on their own data in as little as five days. That has led to strong adoption. In fact, Palantir was one of two top-ranked vendors in the Dresner Advisory Services 2024 market study on artificial intelligence, data science, and machine learning software.

Image source: Getty Images.

Palantir impressed investors with its third-quarter earnings report

Palantir reported strong financial results for the third quarter, beating estimates on the top and bottom lines. Its customer count rose 39% to 629, and the average existing customer spent 18% more. Revenue increased 30% to $726 million, marking the fifth consecutive acceleration, and non-GAAP net income increased 42% to $0.10 per diluted share.

CEO Alex Karp attributed the strong numbers to demand for AIP. "The growth of our business is accelerating, and our financial performance is exceeding expectations as we meet an unwavering demand for the most advanced artificial intelligence technologies from our U.S. government and commercial customers," he wrote in his letter to shareholders.

Palantir also raised its full-year guidance, such that revenue is now expected to grow 26% in 2024. That would be a material acceleration from 17% revenue growth in 2023. And recent updates suggest that momentum may carry into next year. Palantir in December received FedRAMP High Authorization, meaning its full portfolio can be used by the U.S. government to "process the most sensitive unclassified workloads."

More recently, the company announced a $618.9 million contract with the U.S. Army that will expand its long-standing support of the Army's data-driven decision-making platform. "Our continuous addition of new AI capabilities enables the Army's own ability to develop applications and incorporate the benefits of effective data analysis across nearly every high-priority mission," said Akash Jain, President of U.S. government business at Palantir.

Palantir stock is very expensive compared to future earnings forecasts

In summary, Palantir is executing on what promises to be a massive opportunity with AIP. The International Data Corporation estimates that spending on AI platforms will increase at 51% annually through 2028, making it the "fastest growing" cloud technology in the next few years.

However, investors should bear in mind that no stock is worth buying at any price, no matter how well the business is executing. Palantir shares currently trade at 225 times adjusted earnings. That valuation looks particularly absurd when the company's earnings are projected to increase 31% in the next 12 months.

Consequently, Wall Street analysts are quite pessimistic about the stock. Its median 12-month target price of $39 per share implies 50% downside from the current share price of $79. Even Dan Ives, whose target price is set at $75 per share, anticipates downside in the stock in the near term.

Here is the bottom line: Palantir could grow into a trillion-dollar company in the future, as Ives suggests. So, patient shareholders comfortable with extreme volatility can sit tight. However, prospective investors should consider waiting for a better entry point. I believe more attractive buying opportunities will arise in the coming months.

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Trevor Jennewine has positions in Palantir Technologies. The Motley Fool has positions in and recommends Oracle and Palantir Technologies. The Motley Fool has a disclosure policy.