Palantir Technologies (PLTR 0.56%) The stock soared 110% last year as investors bought up the software platform provider’s shares in droves thanks to rapidly growing demand for its artificial intelligence (AI) offerings. And yet, Wall Street isn’t expecting any further gains in the coming year, as the stock has already risen so far.

Palantir stock has a median 12-month price target of $28 (according to 24 analysts who cover it), which represents an 11% downside from the current price. A third of those analysts recommend selling Palantir, 38% rate the stock as a buy, and the rest as a hold.

Does this divided analyst sentiment mean it’s time for investors to book profits on Palantir? Or can this high-flying AI stock continue the rally and deliver more gains in the coming year? Let’s examine whether Palantir has what it takes to beat Wall Street’s expectations.

Palantir’s growth profile continues to improve

Palantir’s high valuation appears to be a key reason why analysts doubt the company can offer more upside over the next 12 months. The stock’s price-to-sales ratio of 29 is admittedly expensive. It’s nearly four times the U.S. tech sector index’s average sales multiple of 7.7. Palantir’s trailing price-to-earnings ratio is also very expensive at 178. The forward earnings multiple of 86 suggests a nice earnings increase next year, but is still too expensive.

One way to justify buying Palantir stock despite its high valuation is the company’s accelerating growth. In the second quarter, the company’s revenue rose 27% from the same period last year to $678 million. That was better than the 21% growth Palantir posted in the first quarter of the year. The company’s revenue growth in the first half of the year suggests it is on track to surpass the 17% full-year revenue jump it was projected to reach $2.2 billion in 2023.

The company expects to close 2024 with revenue of nearly $2.75 billion, a 25% increase from last year. Analysts forecast earnings to rise 44% to $0.36 per share in 2024. However, it is worth noting that analysts have been raising their expectations recently.

PLTR EPS estimates for the current fiscal year, data from YCharts

Stronger than expected growth could drive Palantir shares higher

Also notable in the chart is that despite increasing revenue forecasts for Palantir over the next few years, analysts expect slower growth in 2025 and 2026. However, this may not be the case, as the recent acceleration in the company’s growth appears to be sustainable in the coming year.

Put more simply, Palantir’s revenue growth in 2025 could be significantly stronger than analysts expected. That’s because the company’s Artificial Intelligence Platform (AIP) is driving robust growth in its revenue pipeline. The company’s remaining performance obligations (RPO) increased 41% year over year to $1.37 billion in the second quarter.

Palantir’s RPO reflects the value of contracts the company has with customers, meaning it’s an indicator of its future revenue growth. However, Palantir points out that its RPO is mostly made up of commercial contracts. Remaining contract value (RDV) is the metric to look at to get an idea of ​​the potential revenue growth Palantir could achieve. RDV is the total remaining value of all the company’s contracts at the end of a quarter. This metric was $4.3 billion in the second quarter, up 26% from the same quarter last year. It remains to be seen how quickly Palantir can turn these contracts into actual revenue, but it’s worth noting that its RDV is significantly higher than its trailing 12-month revenue of $2.5 billion.

So, there is a strong possibility that Palantir’s growth next year will be better than expected, especially considering that the company could continue to attract new customers for its AI software offerings given the huge end-market opportunity this market presents. Market research firm IDC predicts that the market for the AI ​​software platforms offered by Palantir could register a compound annual growth rate of 41% through 2028 and reach annual revenue of $153 billion at the end of the forecast period.

Palantir is in a solid position to make the most of this opportunity. According to the research firm ForresterPalantir has been ranked as a leading AI software platform provider, as evidenced by the company’s rapidly increasing number of contracts. For example, in the second quarter, 123 contracts were signed with U.S. commercial customers, a 98% increase over the same period last year.

More importantly, Palantir’s deal size is only getting bigger. Last quarter, the company closed 96 deals valued at $1 million or more, compared to 66 in the same period last year. In addition, the number of deals valued at over $10 million increased 50% year over year to 27. So as Palantir’s AI platforms become more widely adopted, the pace of growth should also accelerate.

In addition, Palantir’s price-earnings-growth ratio (PEG ratio) is well below 1.

PLTR PEG Ratio (Forward) data by YCharts

The PEG ratio is a forward-looking valuation metric calculated by dividing a company’s trailing P/E ratio by its forecast earnings growth. A value of less than 1 means a stock is undervalued for its potential growth. So growth investors can still consider buying Palantir shares, as there’s a good chance its stronger-than-expected performance could be rewarded with further gains in the market in the coming year.