Meet the Newest Stock in the S&P 100. It Soared 430% Since the Start of Last Year, and It's Still a Buy Right Now, According to 1 Wall Street Analyst.

The S&P 500 (^GSPC -1.12%) is the most widely recognized benchmark of the U.S. stock market, made up of the 500 largest companies in the country. Given the scope of its member companies, it is considered by many as the most dependable gauge of overall stock market performance.

To be included in the S&P 500, companies must meet the following requirements:

• Be a U.S.-based company
• Have a market cap of at least $8.2 billion
• Must be highly liquid
• A minimum of 50% of its outstanding shares must be available for trading
• Must be profitable according to generally accepted accounting principles (GAAP) in the most recent quarter
• Must be profitable over the preceding four quarters in aggregate

The S&P 100 is a subset of that benchmark and represents the largest, most well-established companies in the index.

Palantir Technologies (PLTR -4.33%) is one of the newest additions to the S&P 100, joining its ranks on March 24, making it one of just three companies to make the cut so far this year. Since the beginning of 2024, Palantir stock has surged 430% (as of this writing), as the rapid and continuing adoption of generative artificial intelligence (AI) has fueled greater sales and accelerated its profits.

Yet despite its breathtaking move higher, some on Wall Street believe there are additional gains ahead. Let's look at why Palantir stands out and whether the stock is still a buy.

Image source: Getty Images.

AI before the technology went viral

Palantir has been at the cutting edge of AI development for more than two decades. The company was among the first to create state-of-the-art algorithms used by the U.S. government and its allies to scour mounds of data to detect patterns among seemingly unrelated data to identify and prevent potential terrorist attacks.

It didn't take long for Palantir to discover that this same technology had game-changing applications for enterprise-level business. By aggregating information from legacy and current systems, these algorithms could then surface important data that might otherwise be missed, providing companies with actionable intelligence. In response to the demand for generative AI tools, the company developed its Artificial Intelligence Platform (AIP), which helps businesses make data-driven decisions.

In one example, Palantir shows how AIP can harness business-specific information to prepare for a hurricane that will shutter production. The model scans existing orders, proposing which ones to delay, cancel, or accelerate, and which can be shipped from an alternate warehouse or fulfillment center. The system also provides detailed data on how each of these decisions would impact the bottom line.

Any new or complex technology can be intimidating and also raise questions about its potential return on investment. To address those concerns, Palantir offers AIP boot camps for developers and executives who work side by side with Palantir engineers to address real-world, company-specific issues.

This approach has catapulted the company's results to the next level. In the fourth quarter, Palantir's customer count increased by 43% year over year and 13% quarter over quarter. Its AIP training sessions helped Palantir close 129 deals worth at least $1 million, 58 deals worth $5 million or more, and 32 deals worth at least $10 million. Many of those agreements came within just weeks after customers attended an AIP boot camp. Furthermore, the company's quarterly report is brimming with customer testimonials attesting to the game-changing nature of its technology.

The utility of its AI system is having a notable impact on Palantir's overall results. In the fourth quarter, revenue of $828 million grew 36% year over year and 14% quarter over quarter, resulting in the company's ninth consecutive quarter of profitability. U.S. commercial revenue, fueled by AIP, grew 64% year over year, while its customer count grew 73%. The remaining deal revenue (RDV) for the segment, which is the remaining value of contracts not yet recognized as revenue, grew 99%.

Yet the adoption of AI has only just begun. Big Four accounting firm PwC estimates that AI will contribute $15.7 trillion to the global economy by 2030. Companies that aren't positioned for the future risk being left behind.

Thanks to its decades of experience in the field, Palantir is well positioned to profit from this paradigm shift in technology.

The future is bright, but...

I'm not the only one who thinks so. Loop Capital analyst Mark Schappel maintains a buy rating on Palantir stock, with a Street-high price target of $125. That represents potential upside of 37% compared to Friday's closing price.

The analyst says that Palantir is "setting the agenda in enterprise AI" and goes on to note that AIP "essentially sells itself." Schappel acknowledges the "recent multiple compression," citing fear of U.S. government spending cuts.

All that said, there's one obvious disadvantage to an otherwise glowing investing thesis: Palantir stock is currently selling for 193 times forward earnings and 45 times next year's sales, making it egregiously pricey in terms of the most widely used valuation metrics -- and subject to extreme volatility. However, its forward price/earnings-to-growth (PEG) ratio -- which factors in its accelerating growth -- is 0.84, when any number less than 1 is the benchmark for an undervalued stock.

For investors willing to take on some additional risk with the potential for greater reward, Palantir is a good bet on the AI revolution.