Does 1 Top Analyst Know Something About Palantir That the Rest of Wall Street Doesn't?

Key Points

• The Wall Street consensus is that Palantir's share price could tumble over the next 12 months.

• However, Wedbush's Dan Ives predicts that Palantir could triple within the next three years.

• Palantir's valuation remains the biggest concern for many analysts.

You can count the number of S&P 500 stocks that have soared 70% or more year to date on one hand -- and have a couple of fingers left over. Artificial intelligence (AI) software company Palantir Technologies (NASDAQ: PLTR) is a member of the elite group of top performers.

Most Wall Street analysts believe Palantir's momentum is about to come to a screeching halt. But not Wedbush's Dan Ives. Does this top analyst know something about Palantir that the rest of Wall Street doesn't?

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Pessimism about Palantir

In July, financial markets data provider LSEG surveyed 25 analysts who cover Palantir Technologies. Six of them rated the stock as a sell or underperform. Another 15 analysts recommended holding Palantir stock. That leaves only four analysts with favorable views of Palantir right now.

The picture looks even worse with Wall Street's price targets. The average 12-month price target for Palantir is more than 23% below the current share price. RBC Capital predicts that the stock will plunge nearly 70% to $40 per share.

One reason behind the pessimism about Palantir is that some analysts are concerned about the company's growth prospects. That might seem strange, considering that Palantir expects its revenue to jump roughly 36% in 2025. However, this growth rate is slower than the company's growth in the first quarter of 2025, indicating that Palantir looks for growth to moderate somewhat in the coming quarters.

Probably the biggest concern about the stock, though, is that its valuation is unjustifiable. Palantir's shares trade at 238 times forward earnings. Its price/earnings-to-growth (PEG) ratio, which factors in analysts' earnings growth projections over the next five years, is a sky-high 4.18, according to LSEG.

Wedbush's rosy outlook

However, Wedbush has a downright rosy outlook for Palantir. In May, the financial services company maintained its outperform rating for the stock. At the time of that update, Wedbush's 12-month price target of $140 for Palantir reflected an upside potential of 13.5%. Since then, though, Palantir's share price has risen.

I'll be surprised if Wedbush doesn't soon revise its price target upward. Ives, the company's head of technology research, told CNBC in May that he believes Palantir's market cap will reach $1 trillion within the next two to three years. That's more than 3 times the AI software maker's current market cap.

Image source: Getty Images.

Why is Ives so much more bullish about Palantir than most Wall Street analysts? For one thing, he views the company as pretty much in a league of its own in the AI software market. Ives posted on X (formerly Twitter) before Palantir's first-quarter update in May that the company is "the Messi of AI" -- a reference to soccer great Lionel Messi.

Ives estimates that roughly $2 trillion will be spent on AI software over the next few years, and he thinks Palantir will capture much of this growth. He also told CNBC that anyone who focused too much on valuation in recent years missed out on great investment opportunities, highlighting Nvidia and Tesla as prime examples.

Who's right about Palantir?

The dissonance on Wall Street about Palantir is more intense than is normally the case with high-flying growth stocks. Who's right -- Ives or the analysts who expect Palantir's momentum will eventually run out of steam? I lean more toward the Wall Street consensus in this case.

If Ives is right about Palantir's growth prospects, the company very well could achieve a $1 trillion market cap over the next few years. However, we're simply not yet seeing the level of growth that would back up such an optimistic outlook (even though Palantir is admittedly delivering impressive growth).

I suspect that Jefferies analyst Brent Thill is correct that even if Palantir manages to grow at 50% annually over the next five years, it will still be the most expensive software stock on the market by 2030. Importantly, Palantir isn't growing anywhere near 50% at this point.

Thill told CNBC in May that he doesn't see much institutional interest in Palantir because of its valuation. He thinks retail investors are fueling the stock's continued gains. Again, I think he's on target. Following the big money is often the smartest move. That could prove to be true with Palantir.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has a disclosure policy.