DA Davidson goes against market trends and recommends buying Palantir (PLTR.US): The positioning of AI's "orchestration layer" as a key moat, raising the target price to $175.

After a difficult first half of the year and a cumulative stock price decline of over 29%, DA Davidson analyst Gil Luria decisively upgraded Palantir Technologies (PLTR.US), a corporate software company, from "Neutral" to "Buy" on July 2, and raised the target price from $165 to $175. This target price implies a potential upside of over 30% from the previous closing price. Valuation Regression: From 250 times to 71 times the "rational regression" The first core argument for Luria's upgrade is that the valuation has significantly regressed to a reasonable level. Palantir's forward price-to-earnings ratio once exceeded 250 times in November 2025, reflecting the market's crazy premium for the AI software leader. As we entered 2026, the market worried that corporate customers would bypass Palantir and directly use models from OpenAI or Anthropic, causing the stock price to plummet over 29% from its peak. Now, with the stock price pullback and continued rapid profit growth, Palantir's forward price-to-earnings ratio has fallen to around 71 times. Luria stated, "Palantir has gradually aligned its valuation, and the once soaring price-to-earnings ratio has fallen to a more reasonable level." He believes that the current valuation of Palantir is "the most attractive in a long time", especially compared to other high-growth software companies. Luria also raised earnings forecasts for the next two years, with Palantir expected to earn $1.50 per share in 2026 and $2.14 per share in 2027, both higher than previous expectations. Core Logic: AI "Orchestration Layer" goes from "optional" to "essential" The second and more strategically deep argument for Luria's upgrade is that Palantir's unique position in the AI model ecosystem is shifting from "optional" to "essential". The recent conflict between Anthropic and the U.S. government vividly illustrates this logic. On June 12, the U.S. government forced Anthropic to cut off global access to its flagship AI models, Mythos 5 and Fable 5, due to security vulnerabilities, through an export control order. Anthropic was compelled to fully deactivate these two industry flagship models within 72 hours of their release. Luria pointed out in the report, "Anthropic repeatedly chose confrontational strategies against the United States, leading the government to impose restrictions on AI models, forcing Anthropic to withdraw its models from the market." He further warned, "If enterprise customers directly build businesses on these models, business disruptions could be catastrophic. In contrast, if enterprises build businesses on tools like Palantir, they will only experience a slight transition as Palantir will replace AI models at the core of its solutions." This analysis touches on the essence of Palantir's strategic position - it is not an AI model, but an AI orchestration layer. Companies can flexibly switch between different AI models using Palantir's platform without affecting their current operations. In a context of increasingly stringent government scrutiny on AI model providers and rising policy risks, this "model-agnostic" middle layer positioning is becoming more valuable. Luria added, "We believe that this development eliminates Palantir's greatest perceived threat - that businesses will go directly to Anthropic and OpenAI to solve their biggest problems. Even if these two cutting-edge labs deploy companies and hire excellent frontline engineers, they will now face the risk of customers being unwilling to tie their business to an AI model company." Business Fundamentals: 85% revenue growth and government contract moat Palantir's strong business fundamentals provide solid support for the upgrade. Financially, the company's first quarter revenue for 2026 increased by 85% year-over-year to $1.63 billion, marking the 11th consecutive quarter of accelerating revenue growth. U.S. commercial revenue soared by 133% to $595 million, with a GAAP operating profit of $754 million and a profit margin of 46%. Adjusted earnings per share were $0.33, exceeding the market consensus estimate of $0.28. The company's revenue guidance for the second quarter is $1.797 billion to $1.801 billion, higher than FactSet's expected $1.68 billion. The full-year revenue forecast for 2026 has been raised to $7.65 billion to $7.66 billion. In terms of expanding commercial clients, Palantir saw a 42% year-over-year increase in the number of U.S. commercial clients and a 1.6 times increase in the number of contracts worth $1 million or more compared to the same period last year. The total value of contracts reached $1.18 billion. On the government contract front, the U.S. Army has selected Palantir Foundry platform as the core cloud data layer for the Next Generation Command and Control (NGC2) modernization project, providing the company with longer visibility on future revenue. Palantir has also expanded its partnership with NVIDIA Corporation to jointly provide secure deployment services of sovereign AI models for U.S. government agencies. Palantir CEO Alex Karp mentioned in the earnings conference call that the company's "Rule of 40" score has soared to 145% - this metric measures the balance between a software company's growth and profitability, and a score of 145% is extremely rare in the software industry.