Palantir (PLTR) Soars on AI-Driven Enterprise Adoption: A Buy at Undervalued 3.2x P/S

Palantir Technologies (PLTR) has emerged as a standout performer in the AI infrastructure race, with its Q1 2025 earnings revealing a 39% year-over-year revenue surge to $884 million and a Rule of 40 score of 83—a metric combining growth and profitability that now eclipses even the most bullish expectations. The company's Foundry platform, now central to enterprise AI adoption, is driving a wave of multiyear contracts in government and healthcare, positioning PLTR as a critical player in the $200 billion AI software market. With a forward P/S ratio of just 3.2x versus peers like Snowflake (SNOW) at 7.5x or Tableau (CRM) at 8.3x, the stock presents a compelling buy opportunity at current levels.

The Foundry Platform: AI's “Operating System” for Enterprise Autonomy

Palantir's Foundry platform, now augmented by its AI Platform (AIP), is proving to be the “operating system for the modern enterprise” as CEO Alex Karp described. The platform's unique ontology-driven architecture enables customers to translate raw data into actionable insights at scale, with AI agents automating everything from supply chain decisions to healthcare diagnostics.

In Q1, Foundry adoption accelerated across sectors:
- Healthcare: Walgreens deployed Palantir's AI to automate 3.84 billion daily decisions across 4,000 stores, eliminating manual processes and reducing errors. A Fortune 500 healthcare firm signed a $10 million five-year contract after a rapid pilot.
- Government: NATO adopted Palantir's Maven Smart System as its mission command platform, while the U.S. Department of Defense expanded its use for intelligence analysis. The Titan vehicle program, led by Palantir, was delivered on time and under budget.

Why the Q1 Results Matter: Revenue Growth, Valuation, and Strategic Momentum

1. Revenue Growth and Margin Strength:
2. Total revenue rose 39% YoY to $884 million, with U.S. commercial revenue surging 71% to a $1 billion annual run rate.

3. Adjusted operating margin hit 44%, and free cash flow grew to $370 million, underpinning a Rule of 40 score of 83—nearly double its 2020 level.

4. Undervalued P/S Ratio:
   At a forward P/S of 3.2x, Palantir trades at a 58% discount to the median 7.8x P/S of its software peers. This undervaluation is stark given its 25%+ compound annual revenue growth rate (CAGR) since 2020, which outpaces rivals like Splunk (SPLK) or Datadog (DDOG).

5. Deal Pipeline and Customer Retention:

6. Palantir closed 139 deals over $1 million, including 31 over $10 million.
7. Net dollar retention stayed at 124%, reflecting sticky enterprise contracts.

Investment Thesis: A $100 Stock by 2026?

The bull case hinges on three catalysts:
1. AI Infrastructure Demand: As enterprises shift from AI experimentation to production use cases (e.g., autonomous supply chains), Palantir's $1.6 billion in remaining deal value positions it to capture 10-15% of the $100 billion AI infrastructure market by 2027.
2. Healthcare and Defense Tailwinds: Medicare/Medicaid cost pressures and defense modernization (e.g., NATO's AI adoption) create a $50 billion addressable market in these sectors alone.
3. Valuation Re-rating: If Palantir's P/S expands to a conservative 5x (half its peers' average), its stock could reach $105–$120, a 60–85% upside from current levels.

Risks to Consider

• International Headwinds: European commercial revenue fell 5% YoY due to AI adoption delays.
• Regulatory Scrutiny: U.S. government contracts face geopolitical risks, though defense spending is a bipartisan priority.

Conclusion: Buy PLTR for the AI Infrastructure Boom

Palantir's Q1 results confirm its dominance in AI-driven enterprise analytics, with Foundry's ontology-first approach creating defensible moats. At 3.2x P/S, the stock is a rare bargain in a high-growth sector. Investors should capitalize on the disconnect between its 36% revenue growth guidance and current valuation. With AI spending expected to hit $300 billion by 2027, PLTR is primed to deliver 30-40% annual returns over the next two years.

Recommendation: Buy PLTR at $68/share with a 12-month price target of $100. Hold for the long-term AI infrastructure boom.