Palantir stock is soaring. 1 analyst thinks it still has a 38% gain ahead.

The AI ​​revolution has been a mixed bag for software companies. While software stocks that harness the power of large linguistic models (LLM) have the potential to accelerate revenue, AI also offers software customers the potential to do-it-yourself.

For example, privately held buy-now-pay-later company Klarna recently announced that it will try to get rid of Salesforce and Working day software instead of building their own CRM and employee management software in-house by using AI.

However, the AI ​​software platform Palantir (PLTR -0.19%) shows an acceleration in its commercial business due to the advent of AI. And one Wall Street analyst thinks it still has a long way to go.

Palantir is not a meme stock

Some investors have equated Palantir with the meme stock revolution, leading to doubts about its recent run. This could be due to a few things. First, the stock has a high percentage of retail investors compared to institutional investors. Second, Palantir went public in a direct listing in late 2020, when interest rates were low and many dubious software and technology companies sold shares to the public. Finally, CEO Alex Karp is seen as a quirky and outspoken leader, for better or for worse.

But Palantir is not a stock of memes. As proof, the company was recently admitted to the prestigious S&P 500 index, which has strict admission criteria. Over the past two years, Palantir has qualified for the index by posting consistent GAAP profitability — somewhat rare for a software stock.

PLTR Net Income Data (Quarterly) by YCharts

AI leads to a re-acceleration of growth

Additionally, Palantir has seen its revenue growth accelerate. That acceleration coincided with the introduction of the Palantir Artificial Intelligence Platform, or “AIP,” about a year ago. AIP allows companies to embed third-party LLMs or other specialized models directly into existing Palantir Gotham or Foundry software platforms.

AIP has spurred interest in Palantir software, particularly from commercial customers, which has led to a re-acceleration in revenue growth since the introduction of AIP.

PLTR Revenue (Quarterly Yearly Growth) data by YCharts

Normally, it is harder for companies to increase their growth rate as they get bigger because of the law of large numbers. However, it can be seen that Palantir has defied this trend. The introduction of AIP and Palantir adjusting its marketing strategy to include periodic, “boot camps” are likely reasons for the inflection. These bootcamps allow potential customers to bring their real data and experience AIP in a trial with Palantir engineers.

One analyst sees $50 in Palantir’s future

Currently, most of Wall Street is actually bearish on Palantir stock. As of August, just six out of 18 analysts rate the stock a Buy or Strong Buy, with another six rating the stock Neutral and the remaining six rating the stock a Sell. The stock’s average price target is $27, below the current price of $36 at the time of writing. That’s likely because Palantir stock has more than doubled this year, while it currently trades at an expensive valuation of about 35 times sales.

But an analyst, Mariana Perez Mora from Bank of America rates shares a Buy, with a price target of $50 per share. The analyst believes Wall Street is misunderstanding Palantir and sees big things in the company’s future, justifying a higher stock price.

Mora believes others are missing how differentiated Palantir is from other enterprise software stocks, both in terms of the product and how Palantir gets to market. Of note, Palantir typically has members of its R&D team integrate with a customer first, to understand the customer’s business problems and pain points. Palantir then adapts its modular software to the specific business infrastructure, making its data analytics capabilities more relevant to each individual customer. In its annual report, Palantir notes that it pursues “risky and resource-intensive” engagements that other competitors might shy away from.

Mora believes this method, which is more difficult upfront and in which Palantir doesn’t see immediate revenue, pays off in the end. That’s because the upfront work allows Palantir more pricing power later. He then sees Palantir’s products spread across more industries as Palantir releases industry-specific platforms such as the upcoming Warp Speed ​​for manufacturing enterprises.

A standard operating system such as Windows?

While Palantir was previously known as a specialized software platform for the defense industry in the war on terror, Mora sees Palantir becoming an industry-standard platform in the future, calling it “the common data operational system for the US government and large enterprises in US. .”

If Palantir’s recent acceleration in commercial ventures continues, she may very well turn out to be right. With most of its revenue still coming from the defense industry, Palantir’s recent foray into the much larger enterprise market gives it a chance to keep its growth rates high for a while, which may justify today’s high share price.