The S&P 500 is thought to be the best overall benchmark of the U.S. stock market and consists of the five hundred largest publicly traded corporations within the country. Given the range of its member corporations, it is taken into account to be probably the most dependable gauge of overall stock market performance. To turn into a part of the S&P 500, an organization must meet the next prerequisites:

• Be a U.S.-based company.

• Have a market cap of no less than $8.2 billion.

• Be highly liquid.

• Have a minimum of fifty% of its outstanding shares available for trading.

• Be profitable based on GAAP in probably the most recent quarter.

• Be profitable over the preceding 4 quarters in aggregate.

Palantir Technologies (NYSE: PLTR) is some of the recent additions to the S&P 500, being added to the fold on Sept. 23. It is also one in all only 11 corporations to make the grade thus far this yr. Because the advent of generative AI in early 2023, Palantir stock has surged 575%, its gains fueled by robust sales and profit growth.

Even after gains of that magnitude, some on Wall Street consider there’s more to come back. Let’s review what has driven the stock higher and whether its lofty price has simply made it too dangerous.

AI solutions for the masses

Palantir made a reputation for itself serving the U.S. intelligence and law enforcement communities. The corporate’s first-of-their-kind algorithms could sift through mounds of information and connect seemingly disparate bits of data to trace down would-be terrorists.

In more moderen years, Palantir has applied its sophisticated algorithms to present enterprises a competitive edge by providing actionable business intelligence. Thanks partly to its a long time of experience, the corporate quickly recognized the chance represented by generative AI and developed timely solutions to satisfy the necessity. Palantir’s Artificial Intelligence Platform (AIP) was born of those efforts. By leveraging existing company data, AIP can provide businesses with solutions tailored to specific needs.

The proof is within the pudding

Palantir’s go-to-market strategy for AIP is what helped set the corporate apart. The corporate offers boot camps that pair customers with Palantir engineers to assist them fashion solutions to their unique challenges. This strategy has proven to be wildly successful.

Just last month, Palantir announced a recent multi-year, multi-million-dollar contract with Nebraska Medicine, which used AIP to enhance healthcare by harnessing technology. After what it describes as “a series of targeted bootcamps,” the health system was capable of implement a recent workflow that resulted in a greater than 2,000% increase in its Discharge Lounge utilization, which freed up beds earlier and decreased the time needed to discharge a patient by one hour (on average).

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This is only one example of dozens of customer testimonials that show that AIP is saving customers money and time — which in turn boosts Palantir financial results. Within the second quarter, it closed 96 deals value no less than $1 million. Of those, 33 were value $5 million or more, while 27 were value no less than $10 million. Moreover, a lot of these deals were inked inside just weeks of a successful boot camp session.

Taking a step back helps illustrate the impact on the corporate’s overall results. Within the second quarter, Palantir’s revenue grew 27% yr over yr to $678 million while also climbing 7% quarter over quarter. This also marked the corporate’s seventh successive quarter of profit generation. Consistent profitability was the ultimate hurdle needed to secure its admission to the S&P 500. Moreover, Palantir’s U.S. business revenue, fueled by the success of AIP, grew 55% yr over yr, while the segments customer count grew by 83%. Much more impressive was the segment’s remaining deal revenue (RDV) which soared 103%. When RDV is growing faster than revenue, it shows that future revenue growth is accelerating.

Most experts suggest this remains to be the early innings for the adoption of AI software. In Ark Invest’s Big Ideas 2024, Cathie Wood calculates the chance for generative AI software could balloon to $13 trillion by 2030. The bull case is much more eye-catching, at $37 trillion.

Given Palantir’s unique tackle AI implementation and the magnitude of the chance, it’s clear the corporate can proceed to prosper in an increasingly AI-centric world.

Wall Street’s biggest Palantir bull

I’m not the just one who thinks so. On the heels of its admittance into the S&P 500, Greentech Research analyst Hilary Kramer posited that Palantir “easily could be” a $100 stock. That represents potential upside of 130% in comparison with Monday’s closing price.

Kramer believes that given the corporate’s strong revenue and profit growth and increasing backlog, investment banks will eventually need to get on board and increase their estimates, which is able to cause others to have a look at the stock, fueling a virtuous cycle.

Despite the huge opportunity and stellar execution, some investors will likely be delay by Palantir’s frothy valuation. The stock is currently selling for 122 times forward earnings and 29 times forward sales. Nonetheless, using the forward price/earnings-to-growth (PEG) ratio — which considers the corporate’s impressive growth rate — clocks in at 0.4, when any number lower than 1 signals an undervalued stock.

In a case like this, when valuation is a stumbling block, dollar-cost averaging allows investors to ease into the stock over time, picking up more shares when the worth is more reasonable.

Make no mistake: Palantir is positioned to benefit from the AI revolution. Investors with a stomach for some volatility and a bit more risk should consider a position is that this cutting-edge AI stock.

Don’t miss this second probability at a potentially lucrative opportunity

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*Stock Advisor returns as of October 14, 2024

Danny Vena has positions in Palantir Technologies. The Motley Idiot has positions in and recommends Palantir Technologies. The Motley Idiot has a disclosure policy.

Meet the Newest Addition to the S&P 500. The Stock Has Soared 575% Since Early Last Yr, and It’s Still a Buy Right Now, Based on 1 Wall Street Analyst was originally published by The Motley Idiot