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

The S&P 500 (SNPINDEX: ^GSPC) is widely considered the best barometer for the entire U.S. stock market. The index tracks 500 domestic companies that meet certain 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 23rd. 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 big upside potential on the horizon.

Hilary Kramer, portfolio manager at Greentech Research, recently told Fox Business that Palantir could be a $100 stock in the future. Although she didn't give a specific timeline, her forecast is for a 170% increase 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 collect 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 launched its Artificial Intelligence Platform (AIP), adding support for large language models and generative AI to Foundry and Gotham. Experts have praised the product. In August, Forrester Research recognized Palantir as a leader in AI/ML platforms, highlighting its strengths in data collection and preparation, intuitive user interfaces and automation. “Palantir is quietly becoming one of the biggest players in this market,” analysts wrote.

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

Palantir sees an unbroken wave of demand for AIP

Palantir delivered a strong performance in the second quarter, beating estimates on revenue and profit. Revenue rose 27% to $678 million and non-GAAP net income rose 80% to $0.09 per diluted share. CEO Alex Karp said: “The steady increase in our profit reflects the unbridled demand for and understanding of the capabilities of our software.” Management also raised its full-year forecast, now forecasting a 23% increase in revenue in 2024 becomes.

Karp also commented on AIP in his letter to shareholders. “Our flagship artificial intelligence platform (AIP) was launched just over a year ago. And it has already changed our business,” he wrote. “Our growth in the commercial and government markets has been fueled by a relentless wave of demand from customers for artificial intelligence systems that go beyond the purely performative and academic.”

The story continues

Palantir continues to make headlines since the end of the quarter. In September, the company expanded its relationship with its long-standing customer B.P; The oil and gas company will use AIP to improve operational efficiency. Additionally, Bloomberg reported that the U.S. government awarded Palantir a $100 million contract that will make its AI targeting tools available to more military personnel.

Palantir shares are trading at a very high price

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 rise 22% annually through 2025. The stock now trades at 115 times adjusted earnings.

These numbers result in a PEG ratio above 5. In context, PEG ratios of 1 or 2 are generally considered appropriate. That means Palantir stock is outrageously expensive at its current price. Not surprisingly, Wall Street analysts are generally bearish on the company. The stock's median price target of $27 per share implies a 27% downside from the current share price of $37.

Unless there is an extreme acceleration in earnings growth, I doubt Palantir will get anywhere close to $100 per share in the near future. And I personally would avoid this stock until the valuation returns to normal. There are many other stocks that will benefit from the AI ​​boom and are trading at cheaper prices.

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Trevor Jennewine holds positions at Palantir Technologies. The Motley Fool holds 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 jumps 170%, according to a Wall Street analyst, originally published by The Motley Fool