Palantir Technologies (PLTR -6.47%) was one of the hottest artificial intelligence stocks on the market last year. Its 340% return in 2024 made it the single best-performing member of the S&P 500 (^GSPC -1.92%). However, Dan Ives at Wedbush Securities sees the stock moving even higher. And he recently gave shareholders two reasons to be thrilled:
- Ives recently raised his 12-month target price to $90 per share, citing confidence in the company's artificial intelligence strategy. That forecast implies 14% upside from its current share price of $79.
- Ives thinks Palantir could be the next Oracle, a software company worth $515 billion. That comparison implies 185% upside from its current market value of $180 billion.
Importantly, investors should neither buy Palantir stock simply because Ives recommends it, nor should they dismiss his conviction in Palantir without due consideration. Ives ranks among the top 15% of Wall Street analysts in terms of how often his price targets result in profits.
Palantir's AIP is arguably the best artificial intelligence platform on the market
Palantir specializes in data analytics. Its core products, Gotham and Foundry, are operating systems that integrate information into an ontology that improves organizational decision-making. To elaborate, an ontology is a framework that connects digital information to real-world objects and defines the relationship between them. By querying ontology data with analytical applications, businesses can surface important insights.
In 2023, Palantir introduced its artificial intelligence (AI) platform, called AIP, which added natural language processing capabilities to Gotham and Foundry. In other words, AIP lets businesses apply generative AI to their operations. For instance, retailers using Foundry to forecast demand and optimize inventory could prompt the platform in natural language to automatically order products as needed to avoid out-of-stock incidents.
Dan Ives says AIP is a "launching pad of AI use cases," and other industry observers have praised the product as well. Most notably, Forrester Research last year ranked AIP as the best AI platform on the market, awarding it better scores for its current capabilities than similar products from Alphabet's Google Cloud, Amazon Web Services, and Microsoft Azure. Analysts wrote, "Palantir has succeeded in making a powerful platform with friendly tooling for multiple user types."
Palantir's revenue growth continued to accelerated in the third quarter
Dan Ives praised Palantir's third-quarter financial report as a "masterpiece." Revenue rose 30% to $726 million, the fifth consecutive sequential acceleration, driven by strong growth across the commercial and government segments. And non-GAAP net income increased 43% to $0.10 per diluted share.
The company also raised its full-year guidance, such that revenue is now projected to increase 26% in 2024. CFO Dave Glazer attributed the strong quarter and upbeat outlook to demand for AIP. "Our U.S. commercial business continues to see unprecedented demand, with AIP driving both new customer conversions and existing customer expansions," he said on the third-quarter earnings call.
Palantir has also made important announcements since the quarter ended. In December, the company was granted FedRAMP High Authorization across its entire portfolio, meaning government customers can use any of its software products to "process the most sensitive unclassified workloads." Subsequently, Palantir won a $619 million contract with the U.S. Army, and a $37 million contract with U.S. Special Operations Command.
Image source: Getty Images.
Most Wall Street analysts believe Palantir stock is wildly overvalued
Dan Ives says he has attended several AIP Bootcamps, interactive workshops hosted by Palantir where prospective customers learn to use the artificial intelligence platform on actual use cases. Based on his observations at those events, Ives believes no other company has a product that can compete with AIP.
However, most Wall Street analysts think the stock is wildly overvalued. The median target price is $39 per share among the 23 analysts that follow the company, which implies 51% downside from its current share price of $79. In general, the reason for that pessimism is valuation. Palantir trades at 225 times adjusted earnings, which looks absurd when earnings are only projected to grow at 29% annually through 2025.
But Ives in a recent interview with Yahoo Finance said, "You can't just look at [the stock] in terms of what it trades at for next year." Instead, he believes investors should ask themselves what Palantir could be worth three to five years from now. For his part, Ives thinks Palantir could grow into the next Oracle during that period.
Personally, while I completely agree with the long-term mindset Ives is promoting, I also think investors should be cautious buying Palantir at its current valuation. Even if the company is on track to become a $500 billion software giant, I think the stock will suffer a major correction between now and then, which means there may be more attractive buying opportunities in the future.
