Palantir (PLTR) stock soared more than 30% Tuesday as investors cheered the defense software maker's latest artificial intelligence advancements.
"I've never before seen the level of customer enthusiasm and demand that we are currently seeing from [artificial intelligence platforms] in US commercial," Palantir chief revenue officer Ryan Taylor told investors during the company's earnings call on Monday night.
The software company's Artificial Intelligence Platform, or AIP, was mentioned nearly 50 times throughout the call. And, according to Palantir, it's a key reason it expects US commercial revenue to grow nearly 40% in 2024.
It's also the reason the stock surged more than 100% over the past year, as AI euphoria sent many tech stocks roaring. Amid calls that Denver-based Palantir's stock was already overvalued, Tuesday's market action is the latest sign that investors haven't had enough of the AI trade — even if Wall Street believes parts of the trade have extended beyond any fundamental backing.
"We are incredibly bullish on Palantir," Morningstar equity analyst Malik Ahmed Khan told Yahoo Finance Live. "If you look at our forecasts you would see us being above consensus on profitability, on revenue, etc."
"At the same time," he added, "we cannot rationalize Palantir's current valuation in the base case."
Jefferies equity analyst Brent Thill, who entered the earnings report with a Sell rating on Palantir, conceded in a research note after the release that the AIP growth is exceeding expectations. But even after upgrading the stock to a Hold rating, Thill still warned about the cost of the stock.
"The biggest concern is valuation with [the] stock trading at a 23% premium to the large cap average," Thill wrote.
It's not just Palantir that's been catching a fresh bid on AI hopes to start 2024. On Monday, Goldman Sachs boosted its price target on Nvidia stock (NVDA) to $800 from $625, citing "robust AI demand" among other things. The stock jumped almost 5% to a fresh all-time high.
Also, IBM (IBM) stock is up about 15% over the past month after AI demand fueled a revenue beat. AI leader Microsoft (MSFT) saw a muted reaction to earnings, even as the company credited AI services with 6 percentage points of growth to Azure revenue. But in fairness, the stock is also trading just short of an all-time high and is up more than 10% in the last month. The same could be said for AMD (AMD), which didn't soar on its AI-driven earnings beat but is up over 25% in the last month and hovering near an all-time high.
The moves raise the question for investors: When will AI euphoria reach a price that they are no longer willing to pay? To Khan at Morningstar, that could rely on how the US economy performs for the rest of the year.
"There is a chance that if the economy remains strong, customers will continue to invest in some of those newer growth areas," Khan said. "At the same time, if we're looking at a recession or we're looking at something else going on in the wider economy and the economy is not as strong at that point, you will probably have investors sort of dial back some of their investments."
Correction: A previous version of this story misspelled the name of Palantir and the investment research firm Morningstar, and misstated Ryan Taylor's title. We regret the errors.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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