1 Artificial Intelligence (AI) Stock With 75% Upside to Buy Hand Over Fist, According to Dan Ives

Last year, the Nasdaq Composite and S&P 500 both experienced significant rebounds after dismal performances in 2022. One of the main tailwinds last year was a rising interesting in artificial intelligence (AI).

This momentum has continued this year with the Nasdaq and S&P 500 returning 18% and 15%, respectively, so far. Although mega-cap technology stocks in the " Magnificent Seven " have generated particularly strong returns, there are some smaller players emerging as interesting opportunities.

Enterprise software company Palantir Technologies (NYSE: PLTR) has been one of the biggest winners of the AI movement so far. Shares have gained 66% so far in 2024, and research analyst Dan Ives of Wedbush Securities thinks there's a lot more room for the stock to run.

Ives recently assigned a $50 price target to the stock in his upside case, implying 75% upside to its trading levels as of the market close on July 19. Let's explore some of the themes from Ives' research and determine how and why Palantir could continue riding the AI wave.

Palantir is winning over customers in droves

In April 2023, the company released its fourth major software product, the Artificial Intelligence Platform (AIP). While it presented an interesting new source of growth, the company faced a big challenge: Namely, 2023 was dominated by big tech's splashy investments in the AI space.

How could Palantir get AIP on the radar when investors were salivating over Microsoft 's partnership with ChatGPT developer OpenAI , or Amazon 's and Alphabet 's investments in Anthropic?

Undeterred, management rolled out one of the most creative lead-generation strategies I've ever read about. It began hosting seminars called "boot camps" during which prospective customers could test out Palantir's software.

The primary goal was to help prospects identify a use for AI. But the more lucrative benefit of this strategy is that it helps Palantir build its deal pipeline faster -- which has led to an acceleration in customer acquisition and new revenue opportunities.

Management says it has conducted boot camps with over 915 organizations so far. While it's still early, Palantir's boot camp strategy appears to be paying off in the form of new customer adoption.

For the trailing 12 months ending March 31, the company grew its total customer count by 42% year over year to 554. More impressively, the U.S. private-sector customer count rose by 69% annually during the same period.

Interestingly, Ives and his team have spoken with nearly 100 Palantir customers. After gaining a thorough understanding of how these customers are using Palantir's AI software and the ever-evolving use cases for its technology, Ives told investors he was compelled to raise his price target and outlook for the stock.

Image source: Getty Images.

Don't sleep on the government business

Many of Palantir's products are used by government agencies, particularly in the defense sector . The table below breaks down Palantir's revenue trends from its government business over the last year.

Data source: Palantir investor relations.

The big takeaway from the figures above is that after several quarters of declining growth, Palantir's government revenue has started to re-accelerate.

This is a massive positive, and investors should not sleep on the opportunity given the implications AI can have for the company's government business, particularly in the military.

Is Palantir stock a good buy right now?

As of the time of this article, Palantir trades at a price-to-sales (P/S) ratio of 28.6 and a forward price-to-earnings (P/E) of 86.2. It's safe to say that Palantir is definitely a little pricey, even for a growth stock .

Ives addresses concerns over valuation in his latest research, and I tend to agree with his reasoning. Specifically, Ives says he views Palantir as a sum-of-the-parts (SOTP) business.

A SOTP analysis is one which looks at each individual component of a business separately and applies a specific valuation multiple to that segment.

Considering Palantir has a legacy enterprise software platform rooted in data analytics that is now reaching a new customer base thanks to its AI ambitions as well as a government contracting business, Palantir's overall operation is quite diversified. For these reasons, I understand why Ives is looking at each segment of Palantir separately.

To me, Palantir's progress penetrating the private sector with its new AI products combined with its government business are a particularly lucrative combination. Moreover, its rapid customer adoption and reacceleration in the public sector definitely inspire confidence as an investor.

Despite the rich price tag, I think scooping up some shares in Palantir right now could be a good idea considering the potential. A prudent strategy could be to use dollar-cost averaging over the long term and add to the stock when you deem appropriate.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Microsoft, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy .