A Wall Street analyst just added Palantir to his list of top investments and says it could grow by 35%. Is it time to buy?

Now is an exciting time for Palantir Technologies (PLTR 1.00%). It is set to join S&P 500 Monday’s index, showing that the company is one of the leaders today.

The stock is up more than 100% so far this year, even rallying in recent weeks as other tech stocks have stumbled. And Palantir is starting to see big results since launching its artificial intelligence platform (AIP) last year.

Over, Bank of America recently added Palantir to its list of top investments and estimates that the stock could rise 35% from its current level. The bank selected the stock for its US 1 list and expressed optimism about its addition to the S&P 500 and its long-term prospects. The list represents the bank’s favorites among its buy-rated stocks.

Is it time to take Bank of America’s advice and buy Palantir stock? Let’s find out.

Image source: Getty Images.

Palantir’s biggest growth driver

First, a look at Palantir’s journey so far. For many years, the company has been associated with government contracts, and these have been the biggest driver of growth. But lately, its US commercial business has emerged as having great potential for Palantir. These customers have grown from just 14 four years ago to nearly 300 today.

And these customers span a wide range of industries. Palantir recently extended its agreement with the oil company BP to “improve and accelerate human decision-making” and signed a new deal with the fast-food chain at Wendy’s which will first focus on decision making and then include supply chain management and waste prevention.

In the most recent quarter, US commercial revenue grew by 55% and the number of commercial customers increased by 83%, showing strong momentum here. Additionally, the company reported net income of $134 million in the quarter, its biggest quarterly profit ever.

Now let’s think about what comes next. The growth we’ve seen in the commercial business coupled with the fact that it’s being led by Palantir’s AIP is reason to be optimistic.

Artificial intelligence is one of today’s fastest growing fields, with companies hoping to use the technology to become more efficient and profitable. AIP shows these customers and potential customers (through the company’s “boot camps” that allow them to test the platform) how they can do it, and then AIP delivers on those promises – so we can imagine that the demand for AIP continues .

Transforming Palantir’s business

CEO Alex Karp underscores this point, saying that demand for AIP “shows no sign of letting up” and that the platform has “already transformed our business.” The overall AI market is expected to grow from $200 billion today to $1 trillion this decade, suggesting that AIP, which helps customers achieve their AI goals, could continue to drive growth at Palantir.

But just because the company’s commercial business is growing doesn’t mean it’s neglected the customers that were once its bread and butter. Its government business continues to excel – in fact, this recent quarter, for the first time, trailing-12-month revenue for its US government business topped $1 billion.

Now, back to our question. Is it time to follow Bank of America’s advice and buy Palantir stock? Not all analysts are as optimistic about this. In fact, the average analyst estimate is expected for Palantir stock to fall 27% in the next 12 months.

And the stock isn’t the cheapest around. In fact, it looks quite expensive, trading at more than 100 times forward earnings estimate. So if you’re looking for cheap stocks, Palantir isn’t for you.

That said, growth companies are often known to trade at steep valuations at certain points in their history. So if you invest in a quality company with a lot of growth ahead, you can make a profit if you buy today and hold for the long term — even if the stock is expensive today. Palantir has shown that it has what it takes to continue to grow earnings, and the fact that it operates in the area of ​​high AI growth is another plus.

And all of this means that Palantir makes a great investment today for growth investors who have the patience to invest now and stick with this exciting story as its many chapters unfold.