Dan Ives is the global head of technology research at Wedbush Securities. During his two decades following the tech sector, Ives has made several big, bullish calls that challenged the prevailing sentiment on Wall Street.
For instance, he predicted in January 2024 the Nasdaq Composite would hit 20,000 this year. Lo and behold, the index crossed that threshold last week. But Ives made what may be his boldest call to date last month during an interview with Schwab Network.
He argued Wall Street is dramatically underestimating how much Palantir Technologies(NASDAQ: PLTR) will benefit from enterprise artificial intelligence spending. Ives believes Palantir could eventually achieve a market value of $1 trillion. The implies about 490% upside from its current market value of $170 billion.
Here's what investors should know about Palantir.
Palantir has quietly become a leader in artificial intelligence software
Palantir started developing data analytics software for the U.S. intelligence community about two decades ago, and later expanded into the commercial sector. Its core products, Gotham and Foundry, serve as central operating systems that connect complex information to an ontology (a digital representation of real-world objects) to facilitate analysis and improve decision-making.
However, it was the 2023 introduction of its artificial intelligence (AI) platform, AIP, that truly transformed the company. AIP integrates large language models into Gotham and Foundry, which enables customers to apply generative AI to their operations. Dan Ives has called AIP a "launching pad of AI use cases," and other analysts have praised the product as well.
Notably, Forrester Research earlier this year ranked AIP as the best artificial intelligence and machine learning platform on the market, awarding it higher scores than similar tools from Microsoft and Alphabet. Similarly, Dresner Advisory Services ranked Palantir as one of two top vendors in its 2024 market study of artificial intelligence, data science, and machine learning software.
However, not all analysts are so impressed. Gartner scored Palantir below a dozen other vendors for data integration capabilities, and did not even recognized Palantir in its latest report on data science and machine learning. Mixed opinions concerning the company are also reflected in the target prices set by Wall Street analysts, which range from $11 per share to $75 per share.
Palantir continued to execute at a high level in the third quarter
Palantir reported encouraging financial results in the third quarter. The company increased its customer count 39% to 629, and the average existing customer spent 18% more. In turn, revenue rose 30% to $726 million, the fifth straight acceleration in sales growth, and non-GAAP net income increased 42% to $0.10 per diluted share. Management attributed the strong numbers to unrelenting demand for AIP.
Additional highlights from the third quarter are listed below:
Government revenue soared 33% in the third quarter, the fastest growth rate in roughly four years. The company also won a $100 million contract to expand access to its Maven Smart System across more military personnel.
Commercial customers increased 51% over the past year as demand for AIP brought more enterprises to Palantir, and commercial revenue increased 27% in the third quarter.
Additionally, Palantir has made a few important announcements since the quarter ended. It won a $37 million contract establishing it as the lead software integrator for U.S. Special Operations Command. Palantir also received FedRAMP High Authorization, meaning its full product offering can be used by the U.S. government to process sensitive unclassified workloads. That could lead to more robust growth in the government segment.
Image source: Getty Images.
Not a single analyst (including Ives) sees upside in Palantir stock in the next 12 months
In summary, Palantir is executing well across its commercial and government segments, due in large part to demand for AIP. That certainly makes the business compelling, but the stock is another story. Wall Street expects Palantir's adjusted earnings to increase at 25% annually through 2027. That consensus makes the current valuation of 215 times adjusted earnings look absurd.
I'm not sure what Ives would say about that. On one hand, he sees a path to a trillion-dollar market value for Palantir. On the other hand, his 12-month price target of $75 per share implies 1% downside. On that note, Ives has the highest target on Wall Street, which means literally every analyst following Palantir expects the stock to decline in the next 12 months. Admittedly, some analysts may raise their forecasts given that Palantir will be added to the Nasdaq-100.
Here is the big picture: Ives has made countless good calls during his career, and I would not bet against him. My advice to investors that (like me) feel uncomfortable buying Palantir at its current price: Keep Palantir on your watchlist, and look for opportunities to buy the stock on dips. If Ives is correct in thinking Palantir could be a trillion-dollar company (or even a $500 billion company), there is still plenty of time to build a position. Don't let fear of missing out muddle the decision-making process.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Palantir Technologies. The Motley Fool recommends Gartner and 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.
