On September 30, 2020, Data Analytics Specialist Palantir Technologies (PLTR 6.22%) went public.

At the time, the investment community was pretty torn about Palantir’s prospects. On the one hand, the retail investor community was excited about it – thanks in large part to the company’s CEO, Alex Karp. But on the other hand, institutional money managers and Wall Street analysts remained largely skeptical, with many describing the company as a consulting firm or government contractor rather than a technology innovator.

Over the past four years, Palantir has experienced many ups and downs. But since the artificial intelligence (AI) revolution took the world by storm in late 2022, it has steadily risen to become a standout leader in the field.

Below, I explain how Palantir catapulted itself to the top of the AI ​​group and explore various catalysts that should help it generate continued growth over the long term.

Palantir sits in pretty exclusive company

In early 2023, Palantir made a move for the ages. The company released its fourth major software product, the Artificial Intelligence Platform (AIP). Through immersive seminars called “boot camps,” potential customers can demonstrate AIP and identify uses for the company’s software while figuring out how it can fit into their broader technology stack.

Over the past year and a half, AIP has become an absolute frontrunner for Palantir, helping the company revitalize its legacy government business by winning larger contracts while also serving as a ticket into the private sector. The widespread adoption of AIP has ushered in a new phase of growth highlighted by increasing revenues, expanding profit margins, and consistently positive net income and free cash flow.

For several quarters, some skeptics have argued that the company is merely profiting from the AI ​​frenzy and that its growth could very well decline if artificial intelligence becomes a bubble.

But over time, this dubious narrative has faded and the company has ended up joining a fairly exclusive venture. First of all, it deserves a place in the S&P 500 Earlier this year and as of this writing, it is the best performing stock in the index in 2024.

The combination of encouraging growth prospects and entry into the S&P 500 has led to institutional buying of the stock, giving the company a legitimacy that goes beyond the fact that it is a darling of the retail community.

Palantir recently moved from the NYSE to Nasdaq. I think it’s only a matter of time before the company joins another exclusive club: the coveted one Nasdaq-100 Index. If this happens, it will join the S&P 500 among the world’s leading growth stocks and technology companies, which I think will attract even more attention.

Big Tech can’t get enough of Palantir

One of Palantir’s most subtle catalysts is strategic alliances. While you may think that AIP has stiff competition, keep in mind that many of the world’s largest technology companies choose to partner with Palantir rather than compete directly with each other.

Earlier this year Microsoft And oracle announced partnerships with Palantir, both of which will integrate their respective cloud platforms into the company’s foundational AI models.

And just last month, Amazon And Metaplatforms also announced their own partnership with Palantir AIP.

I see Big Tech as an important factor in Palantir’s future as the company looks to penetrate further into core markets through AIP. In other words, the bootcamp strategy will only work for a limited time.

To me, the partnerships mentioned above are another source of lead generation for Palantir – and these sources of growth are so new that they have yet to bear any real fruit for the company.

The rating is my only hesitation

The only downside I see with Palantir is its high valuation. With a price-to-sales (P/S) ratio of 66, it is by far the most expensive stock in the peer group listed below.

Additionally, the company has seen an unprecedented rise in value, particularly in the last two months – driven largely by an impressive third quarter earnings report and further announcements about how big tech companies are turning to AIP for their own benefit.

PLTR horsepower ratio, data from YCharts.

Lucrative opportunities ahead ensure further upside

Investing in Palantir is a difficult decision right now. In fact, some of Wall Street’s most respected hedge funds have been taking profits and reducing their exposure to the stock recently.

On the surface, I understand this approach. No stock goes up forever, and at some point the momentum simply has to fade. But at the same time, it’s pretty clear that the company has some lucrative opportunities that aren’t even factored into its actual growth.

In my opinion, a sensible approach might be to incorporate dollar-cost averaging into the stock over a long period of time at different price points. While I fully recognize that there are more reasonable entry points for the company’s shares, I think the company’s catalysts provide more upside potential than downside potential in a selloff – should one ever occur.

For long-term investors, I think Palantir is a clear AI opportunity and deserves a place in your portfolio next year.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions at Amazon, Meta Platforms, Microsoft and Palantir Technologies. The Motley Fool has positions in and recommends Amazon, CrowdStrike, Datadog, Meta Platforms, Microsoft, MongoDB, Oracle, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.