Where will Palantir Technologies stocks be in 1 year?

Palantir Technologies (PLTR 0.26%) Shares have surged 110% over the past year as investors bought into the software platform provider’s shares due to rapidly growing demand for its artificial intelligence (AI) offerings. And yet, because it has already risen so far, Wall Street is not anticipating more gains next year.

Palantir stock has a 12-month median price target of $28 (across 24 analysts covering it). This represents an 11% drop from the current price. A third of these analysts recommend selling Palantir, with 38% rating it a buy and the rest a hold.

Does this split analyst sentiment mean it’s time for investors to take profits in Palantir? Or can this high-flying AI stock sustain the rally and deliver more gains in the year ahead? Let’s see if Palantir has what it takes to defy Wall Street’s expectations.

Palantir’s growth profile continues to improve

Palantir’s expensive valuation seems a key reason why analysts are doubtful it can deliver much upside in the next 12 months. The stock’s price-to-sales ratio of 29 is admittedly expensive. Almost four times the US technology sector index’s average sales multiple of 7.7. Palantir’s trailing price-to-earnings ratio is also very expensive at 178. The 86-point forward earnings multiple points to good earnings growth over the next year, but it’s still on the expensive side.

One way to justify buying Palantir stock despite its rich valuation is to accelerate the company’s growth. In the second quarter, the company’s revenue rose 27% year-over-year to $678 million. That was better than the 21% year-over-year growth reported by Palantir in the first quarter of the year. The company’s top-line growth in the first half of the year indicates that it is on track to exceed the 17% full-year revenue growth it has projected in 2023 to $2.2 billion.

The company expects to end 2024 with revenue of nearly $2.75 billion. That would be a 25% increase over last year. Analysts expect its earnings to grow 44% in 2024 to $0.36 per share. But it’s worth noting that analysts have raised their expectations lately.

PLTR EPS estimates for current fiscal year data by YCharts

Stronger-than-expected growth could send Palantir shares higher

Another thing worth noting in the chart is that despite an increase in Palantir’s revenue estimates for the next two years, analysts expect it to grow at a slower pace in 2025 and 2026. However, this may not be the case, as the company’s recent acceleration in growth looks sustainable into the year ahead.

In simpler words, Palantir’s top-line growth could be much stronger than analysts expect in 2025. This is because its Artificial Intelligence Platform (AIP) is driving robust growth in its revenue volume. The company’s remaining performance obligations (RPOs) rose 41% year-over-year in Q2 to $1.37 billion.

Palantir’s RPO reflects the value of the contracts the company has with customers, meaning it’s an indicator of its future revenue growth. However, Palantir emphasizes that its RPO consists primarily of commercial contracts. Remaining Trading Value (RDV) is the metric to look at to get an idea of ​​the potential growth Palantir can deliver. RDV is the total remaining value of all the company’s contracts at the end of a quarter. That figure was $4.3 billion in Q2, up 26% from the same quarter last year. It remains to be seen how quickly Palantir can translate these contracts into actual revenue, but it’s worth noting that its RDV is significantly higher than its trailing 12-month revenue of $2.5 billion.

So there’s a strong possibility that Palantir’s growth will be better than expected in the year ahead, especially given that it could continue to attract new customers to its AI software offerings in light of the huge market opportunity available in this market . Market research firm IDC estimates that the market for Palantir’s AI software platforms could see a compound annual growth rate of 41% through 2028, generating annual revenue of $153 billion by the end of the forecast period.

Palantir is in a strong position to make the most of this opportunity. According to the research firm ForresterPalantir was ranked as the no. 1 of AI software platforms. This is also evident from the fact that the number of transactions of the company has increased rapidly. For example, it closed 123 deals with US commercial customers in Q2, which was a 98% jump from the year-ago period.

More importantly, Palantir’s deal volume continues to grow, with the company closing 96 deals worth $1 million or more last quarter, up from 66 such deals in the same period last year. In addition, the number of deals over $10M increased 50% year-over-year to 27. So as the adoption of Palantir’s AI platforms increases, the growth rate should increase as well.

Furthermore, Palantir’s price-to-earnings-growth ratio (PEG ratio) is well below 1.

PLTR PEG Ratio data (before) by YCharts

The PEG ratio is a forward-looking valuation measure calculated by dividing a company’s trailing P/E by expected earnings growth. A reading of less than 1 means a stock is undervalued in light of its growth potential. So, growth investors can consider buying Palantir stock, as there’s a good chance that its stronger-than-expected performance over the next year will be rewarded with more market gains.