The main reason why Wall Street is obsessed with Palantir's stock

Key points

• Palantir has expanded its business beyond government contracts.
• The company's US commercial business increased its revenue by 93% year-over-year in the second quarter.

If you have been paying attention to the tech world in recent years, you have undoubtedly noticed how inevitable artificial intelligence (IA) has become. Even without following tech news, you have likely encountered AI in some form.

This fever for AI has turned many tech stocks into preferred options for investors looking to capitalize on this new technology, but few have generated as much obsession on Wall Street as Palantir Technologies. The stock has risen more than 120% year-to-date as of September 10, and more than 378% in the last 12 months.

Why the obsession with Palantir?

Wall Street has become obsessed with Palantir because the company has shown that it is not a one-trick pony.

For a long time, Palantir was seen as a specialized data software company serving government agencies like the Department of Defense and the CIA. However, the growth of its commercial business in the U.S. —thanks to its Artificial Intelligence Platform (AIP)— has shown that it can expand into the private sector and compete in the conventional business space of AI.

In the second quarter, Palantir's U.S. commercial business grew its revenue by 93% year-over-year to $306 million. Although it did not surpass U.S. government revenue (426 million), it was clearly its fastest-growing segment.

Should you also be obsessed with Palantir?

Seeing additional income flows in Palantir is encouraging, but if you are not an investor yet, you should proceed with caution before jumping into these stocks due to their extremely high valuation. Palantir is currently trading at nearly 267 times its future earnings, one of the highest valuations in stock market history, regardless of the company.

This does not make Palantir a bad investment, but such a high valuation means that investors have anticipated a lot of growth, and any outcome that does not meet these high expectations could lead to a sharp correction.

I wonder if this speculative bubble in technology is too similar to what we saw with cryptocurrencies? History tends to repeat itself, and investors seem to quickly forget the lessons of the past when the market becomes euphoric.