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In 2024, data analytics firm Palantir Technologies (NASDAQ: PLTR) was one of the top performers in the S&P 500 (SNPINDEX: ^GSPC), with its shares gaining more than 340%. After such a meteoric rise, you might think that Wall Street analysts would advise shareholders to trim their positions and lock in some gains.
However, veteran analysts Dan Ives of Wedbush Securities and Mariana Perez Mora of Bank of America remain two of the strongest Palantir bulls on Wall Street.
Moreover, the company just received perhaps its most optimistic call yet from Loop Capital Markets.
Loop Capital sees major upside in Palantir stock
Rob Sanderson is an equity research analyst at Loop Capital Markets. In late February, he initiated coverage on Palantir stock with a buy rating.
And while plenty of analysts view Palantir stock as a buy, Sanderson set himself apart from the pack with an aggressive 12-month price target of $141 per share, implying roughly 60% upside from current trading levels. As of this writing, Loop's price target is the highest on Wall Street among analysts covering Palantir.
Valuation is a valid concern
One of the most obvious concerns investors may have about putting money into Palantir is its valuation. Sure, the stock rose by 340% last year -- but what does that really mean?
As illustrated in the chart above, Palantir's valuation metrics are pretty hard to make sense of. While growth stocks, particularly in the software space, tend to carry premium valuations, the price-to-sales (P/S) and price-to-earnings (P/E) ratios above are abnormally rich.
In essence, Palantir experienced such high degrees of valuation expansion over the last year that traditional benchmarks just aren't that useful when assessing an investment in it.
In Sanderson's research note, he compares Palantir to companies such as Adobe and Salesforce. While neither of them competes with Palantir directly, I see both software giants as decent comparable businesses. My rationale is that Adobe and Salesforce dominate their respective core markets -- namely, web design and customer relationship management. While plenty of competition exists in both of these spaces, Adobe and Salesforce have built such integrated, sticky ecosystems that each is like a pseudo-monopoly.
Palantir has a long way to go before it reaches the scale of Adobe or Salesforce (despite the closeness of their respective valuations). For this reason, to buy Palantir stock right now requires an investor to at some level buy into the long-term narrative that the company will one day become a software giant. And valuing narratives accurately is an impossibly tall order.