Some of the biggest gainers among artificial intelligence (AI) stocks are mega-cap behemoths such as Microsoft and Nvidia. However, savvy investors know that growth can be found outside of the "Magnificent Seven" stocks, too.
One player emerging as a rising star in the AI realm is enterprise software developer Palantir Technologies(NYSE: PLTR). Palantir shares have risen 136% over the last year.
While a surge of that magnitude might make you think you've missed the boat, some analysts on Wall Street are calling for even more gains. Dan Ives of Wedbush Securities and Mariana Perez Mora of Bank of America both have a $50 price target for Palantir -- implying 37% upside to current trading levels.
I've analyzed several factors that could propel Palantir stock to new highs and explore why now could be a lucrative opportunity to scoop up shares.
Don't discount the government business
About half of Palantir's business stems from public sector deals with the U.S. military and defense agencies of its Western allies. While government contracting can be a reliable source of revenue, there are some caveats that make it unattractive to some investors. Namely, public sector deals tend to carry lumpy sales cycles, which can make revenue and cash flow difficult to forecast.
The rate of growth in Palantir's government operation has fallen over the last several years. The deceleration in Palantir's government business is more than obvious.
Category
2020
2021
2022
2023
Government revenue % growth year over year
77%
47%
19%
14%
Data source: Palantir investor relations.
Nevertheless, through the first six months of 2024, Palantir's government revenue of $706 million represents 19% growth year over year, which I see as the beginning of a new period of acceleration.
One thing supporting my bullish outlook is Palantir's recent partnership with Microsoft. At a high level, the deal revolves around Microsoft's Azure cloud computing infrastructure and Palantir's Artificial Intelligence Platform (AIP). But more specifically, the relationship involves integrating Azure deployments from U.S. defense and intelligence agencies with Palantir's software.
I see this as a major nod of validation from Microsoft, and an opportunity for Palantir to reignite growth on the government side of its business.
Image source: Getty Images.
The commercial business is just ramping up
For years, one the biggest criticisms of Palantir was that the company was too reliant on government business and did not have enough of a presence in the private sector. But since launching AIP in April 2023, Palantir supercharged its commercial sector clientele.
For the trailing-12-month period ended June 30, Palantir's total customer count grew 41% year over year to 593 clients.
However, over this same period, growth from the commercial sector increased even more dramatically -- up 55% year over year to 467 customers. Drilling down even further, Palantir has done an incredible job penetrating the private sector in the U.S. in particular.
Image source: Palantir investor relations.
Similar to the government segment, I think Palantir's growth narrative in the private sector is just beginning. Earlier this year, Palantir partnered with cloud computing and enterprise software giant Oracle.
I think Palantir will continue forging alliances with the tech world's biggest names, and I see these relationships as further sources of lead generation to bolster the company's deal flow.
Can Palantir stock reach $50?
I see several reasons why Palantir stock could soar even higher. In addition to the growth prospects that come with working with big tech, investors should consider how strong Palantir's overall operation has become.
While revenue is starting to accelerate again, Palantir is also now consistently generating positive free cash flow and net income on a generally accepted accounting principles (GAAP) basis. The company can use these profits for further investments in research and development (R&D) and new product initiatives.
As long-term investors, it's not overly important to focus on a particular stock price that a company may one day reach. Instead, it's more important to look at the bigger picture and assess the likelihood of share price appreciation.
To me, the combination of growth across the top and bottom lines makes for some lucrative growth prospects in the long run. Moreover, considering Palantir was just selected to be included in the S&P 500, I wouldn't be surprised to see the company land on more radars of large and influential companies.
At the end of the day, I definitely see even better days ahead for Palantir and think there is much more upside in the stock -- $50 may just be the next stop along the way.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco has positions in Microsoft, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Bank of America, Microsoft, Nvidia, Oracle, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.