Palantir (PLTR.US) returns to Wall Street buy list: analysts collectively turn bullish after stock price pulls back 38% from highs.

After experiencing four months of sell-off, the growth potential of defense business has reignited market enthusiasm for Palantir Technologies Inc. (PLTR.US), and Wall Street's bullish sentiment towards the stock is approaching historical highs. This data analytics software company derives about half of its revenue from contracts with the U.S. government and military. With President Trump escalating threats against Iran and the U.S. launching military strikes against the country, the stock has rebounded since last week, rising another 5.8% on Monday, with a cumulative increase of 13% over four trading days. The Trump administration anticipates the conflict may last for weeks, while Iranian officials suggest it may continue for a longer period. "The increase in stock price is an emotional response to the strategic position of Palantir in the government and military," said Tim Palyara, Chief Investment Officer of Capwealth Advisors, which holds the company's stock. "I don't believe the war will significantly change the fundamentals of Palantir, but it validates the company's position within the government and establishes a foundation for its continued penetration into many other areas of the military. This war underscores the company's deep integration within the government system and its moat." Palantir, which has long been questioned by analysts for its high valuation, experienced a significant pullback last month, with a cumulative decline of 38% from its historical high on November 3 to its low point on February 24. During this period, investor Michael Burry, famous for "The Big Short," voiced concerns about the stock's valuation and growth potential, while also questioning its business dealings with U.S. Immigration and Customs Enforcement and the Department of Homeland Security. As a long-term contractor for the U.S. government, Palantir primarily works with the military and ICE. In 2024, the company secured a $100 million contract to provide an AI combat management platform, the Maven Intelligence System, integrating military data. Last summer, the U.S. Army awarded it a $10 billion contract, with the government stating it will shorten the procurement cycle and "ensure soldiers quickly access cutting-edge data integration, analysis, and AI tools." Even before the airstrikes on Iran began, Wall Street analysts had already turned optimistic about Palantir. While concerns about AI disrupting the software industry partly explain the stock's pullback from its peak, the market generally views Palantir as a beneficiary of AI, a view confirmed by its latest strong financial reports. "Palantir has shown a sustainable growth path in a challenging environment," said Dave Mazza, CEO of Roundhill Investments, which holds the stock in its Roundhill Generational AI and Technology ETF. "Analysts upgrading their ratings indicate a solid fundamental outlook." However, the risk remains in the high valuation. Palantir is one of the most expensive stocks in the S&P 500, with an expected price-to-earnings ratio of around 104 times in the next 12 months and a price-to-sales ratio of 45 times, topping the component stocks. Of course, this has significantly declined from the expected price-to-earnings ratio of 247 times on October 30 and the price-to-sales ratio of 89 times on August 8, making the current stock price appear relatively cheap. "If analysts were bullish on its fundamentals at $200, they will only be more bullish at $140," Mazza said. Analysts upgrading their ratings and new coverage from Rosenblatt Securities with a Buy rating significantly boosted market sentiment. Data shows that out of 31 analysts tracking Palantir, 20 recommend buying, 9 recommend holding, and 4 recommend selling. At the beginning of the year, there were only 9 buy ratings. The consensus target price is around $190, representing a 31% upside from Monday's closing price. Institutions that upgraded their ratings last month include UBS Group AG, Mizuho Securities, HSBC, Freedom Capital, Daiwa, Northland, Baird, and William Blair. Representative of UBS Group AG analyst Carl Kirsted's view, in a report on February 26, he called Palantir a "leading growth story in the software industry, at the intersection of two strongest spending trends - AI and data." He added that the valuation "finally reaches a level where many investors can make a strong valuation argument." This view was confirmed in last month's financial report, as Palantir not only exceeded Wall Street expectations but also provided far stronger revenue guidance than predicted. Data shows that Palantir's expected revenue growth in the next 12 months is 73%, ranking fifth in the S&P 500. All of this has provided significant momentum for Palantir in an uncertain period for GEO Group Inc. While investors are concerned about the duration of the conflict in Iran and its impact on the global market economy, Palantir has become one of the few companies truly benefiting from the turmoil. In fact, the conflict may create more global demand for its product services. "Conflicts help them get new customers, especially against the backdrop of escalating Middle East tensions," said senior technology analyst Mandip Singh. "One of the primary applications of Palantir software is assessing supply chain risks on the business side. Companies with exposure to the Middle East face significant supply chain risks, and they could become customers. While there was already tension with GEO Group Inc, the war brings new urgency."