Meet the newest artificial intelligence (AI) stock in the S&P 500. Buy it before it rises 170%, according to a Wall Street analyst

The S&P 500 (SNPINDEX: ^GSPC) is widely regarded as the best barometer for the US stock market. The index tracks 500 national companies that meet specific inclusion requirements in terms of market value, profitability and liquidity.

last month, S&P Global announced that Palantir Technologies (NYSE: PLTR) would be added to the S&P 500 on September 23. Dan Ives of Wedbush Securities called it a “validating moment for the Palantir story.” Shares are up 22% since the announcement, but one analyst still sees huge upside on the horizon.

Hilary Kramer, portfolio manager at Greentech Research, recently told Fox Business that Palantir could be a $100 stock in the future. While she didn’t discuss a specific timeline, her forecast implies a 170% upside from the current share price of $37.

Here’s what investors should know.

Palantir is the market leader in artificial intelligence platforms

Palantir’s core platforms, Foundry and Gotham, enable companies to capture data, develop machine learning (ML) models, and integrate these assets into an ontology. Ontology defines the relationships between digital information and real-world counterparts. Users can interact with the ontology through analytical applications to improve decision-making. Palantir says its ontology layer is a “key differentiator.”

In 2023, Palantir released its Artificial Intelligence Platform (AIP), adding support for large language models and generative AI to Foundry and Gotham. Experts praised the product. In August, Forrester Research recognized Palantir as a leader in AI/ML platforms, highlighting strengths in data ingestion and preparation, as well as intuitive user interfaces and automation. “Palantir is quietly becoming one of the biggest players in this market,” the analysts wrote.

This bodes well for Palantir and its shareholders. International Data Corp. (IDC) expects AI platform sales to grow 51% annually through 2028.

Palantir sees an unrelenting wave of demand for AIP

Palantir performed strongly in the second quarter, beating estimates on the top and bottom lines. Revenue increased 27% to $678 million and non-GAAP net income increased 80% to $0.09 per diluted share. CEO Alex Karp said, “Our steady profit growth reflects the unbridled demand and understanding of our software’s capabilities.” Management also raised full-year guidance so that revenue is now expected to grow 23% in 2024.

Karp also commented on AIP in his letter to shareholders. “Our flagship Artificial Intelligence Platform (AIP) launched just over a year ago. And it has already transformed our business,” he wrote. “Our growth in the commercial and government markets has been driven by an unrelenting wave of customer demand for artificial intelligence systems that go beyond just the performative and academic.”

The story continues

Palantir has continued to make headlines since the quarter ended. In September, it expanded its relationship with long-standing customers BP; the oil and gas company will implement AIP to improve operational efficiency. In addition, Bloomberg reported that the US government awarded Palantir a $100 million contract that will make its AI targeting tools available to more military personnel.

Palantir stock is trading at a very expensive valuation

Palantir is an interesting company with a strong presence in a fast-growing industry, but its valuation is in the stratosphere. Wall Street expects Palantir’s adjusted earnings to grow 22% annually through 2025. Meanwhile, the stock trades at 115 times adjusted earnings.

These numbers give a PEG ratio above 5. For context, PEG ratios of 1 or 2 are generally considered reasonable. That means Palantir stock is outrageously expensive at its current price. Not surprisingly, Wall Street analysts are generally bearish on the company. The average stock price target of $27 per share implies a 27% downside to the current share price of $37.

Barring an extreme acceleration in earnings growth, I doubt Palantir will approach $100 per share in the near future. And I personally would avoid this stock until the valuation comes back down to Earth. There are plenty of other stocks poised to benefit from the AI ​​boom that are trading at more reasonable prices.

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Trevor Jennewine holds positions in Palantir Technologies. The Motley Fool has positions in and recommends BP, Palantir Technologies, and S&P Global. The Motley Fool has a disclosure policy.

Meet the newest artificial intelligence (AI) stock in the S&P 500. Buy it before it surges 170%, according to a Wall Street analyst Originally published by The Motley Fool