Meet the New S&P 500 Company That Just Reported Its Most Profitable Quarter Ever and Is Heading for a 280% Gain This Year

The S&P 500 is a powerful representation of today’s market, including the 500 companies that fuel the economy. In order to make it into this benchmark, most of a company’s shares must be available for trading, market cap should be $18 billion or more, and the company must be profitable. So, to be invited into the index is a pretty big deal. Inclusion also could result in gains for a particular stock over time as funds that track the index add it — and as more cautious investors see this milestone as a sign of strength and decide to give the stock a try.

Just recently, a high-flying tech stock joined the S&P 500. This player, generating enormous growth thanks to its artificial intelligence (AI) powered platform, is heading for a gain of more than 280% this year. Can it keep up the momentum? Let’s take a closer look at this company, its path so far, and what may lie ahead.

Soaring past analysts’ price targets

Meet this new S&P 500 company that’s soared well past analysts’ expectations: It’s Palantir Technologies (PLTR -1.03%). The average analyst has a 12-month price target of about $40 for Palantir, but the stock has climbed to about $66, just under the highest analyst price target of $75. This is thanks to Palantir’s quarter after quarter of revenue growth and its reports of enormous demand for its Artificial Intelligence Platform (AIP).

The Palantir story began about 20 years ago, and throughout most of the company’s history, it was known for its contracts with governments. Palantir is a software-as-a-service company, helping customers aggregate all of their data and use it to make key decisions or launch new and potentially game-changing programs.

Now, fast-forward to recent times and the AI boom. Companies are eager to harness the power of AI to improve their operations, save time and money, and launch new projects. And more and more, they’re turning to Palantir’s AIP. Palantir launched the platform last year and demand has soared — on top of this, since companies love AIP, commercial revenue is becoming a huge growth driver for Palantir.

In the most recent quarter, for example, U.S. commercial revenue climbed 54%, while U.S. government revenue increased 40%, and in the previous quarter commercial revenue growth topped government growth too. This trend is fantastic because it shows Palantir has a new and high-potential growth driver — the commercial customer — but at the same time government customers continue to deliver double-digit growth. So Palantir has the best of both worlds.

Commercial customer growth

A look at commercial customer count shows us how meteoric gains have been for Palantir. Just four years ago, the company had only 14 U.S. commercial customers, and today it has almost 300. The size of deals has become significant too, with the company closing 104 worth more than $1 million in the recent quarter.

Part of this momentum may have to do with Palantir’s excellent way of introducing AIP to potential customers. The company holds AIP Bootcamps, sessions that help this potential customer go from zero to a use case in a matter of hours. These bootcamps have been highly successful, generally resulting in major deals in the weeks following the event. For example, in the latest quarter, three commercial customers signed seven-figure deals less than two months after their bootcamps.

All of this helped Palantir recently report its biggest quarterly profit ever, with net income climbing to $144 million.

What’s ahead for Palantir?

So, what’s ahead for this top tech company? Considering AIP launched just last year and we’re still in the early stages of the AI boom, a lot more growth may be ahead for Palantir — especially in the commercial business. Analysts forecast more than 25% annual growth in earnings per share over the coming five years, and the company’s comments about demand support the idea of ongoing strong revenue growth.

Chief executive officer Alex Karp spoke of “unwavering demand” in his latest letter to shareholders.

Palantir shares aren’t cheap right now, trading at more than 170 times forward earnings estimates, but this may not hold back the stock from additional gains. Often, technology stocks in their early days of growth come with high valuations, but if earnings growth takes off over time, those valuations could come down.

All of this means that Palantir’s momentum might continue, and investors who buy today — or who already have invested — and hold onto the stock could have a lot to gain over the long run.