Meet the newest stock in the S&P 500. It's up 430% since the beginning of last year and is still a buy right now, according to one Wall Street analyst

The S&P500 is the best overall index of the US stock market and consists of the 500 largest companies in the country. Given the size of its member companies, it is considered by many to be the most reliable indicator of the general performance of the stock market. To be included in the S&P 500, companies must meet the following requirements:

• Be a US-based company

• Have a market capitalization of at least $8.2 billion

• Must be highly liquid

• At least 50% of the issued shares must be available for trading

• Must be profitable in the last quarter according to GAAP

• Must be profitable overall in the last four quarters

Palantir Technologies (NYSE:PLTR) is one of the new additions to the S&P 500. It was added on September 23 and is one of only 11 companies added so far this year. Since the beginning of 2023, Palantir stock has risen 430% as the increasing adoption of generative AI has boosted the company's revenue and profits.

But despite its tremendous success, some on Wall Street believe the company has a long way to go. Let's take a look at what sets Palantir apart and whether the stock is still a buy.

AI pioneer before AI went viral

Palantir has been a leader in the development of artificial intelligence for more than 20 years. The company initially developed sophisticated algorithms to help the U.S. government and its allies identify and track potential terrorist threats by finding connections between seemingly unrelated data that would lead to potential attackers.

But Palantir soon turned its focus to large enterprises, where the same AI models could find patterns in massive amounts of data and extract actionable insights from them. The company's decades of experience helped Palantir pivot when generative AI went viral last year and develop next-generation AI tools that companies can actually use. The result of that work is the Artificial Intelligence Platform (AIP), designed to help companies make data-driven decisions.

In a demo video, Palantir shows how AIP uses company data to minimize the impact of a production shutdown due to an approaching hurricane. The system analyzes existing orders and makes suggestions about which orders should be canceled, delayed or expedited, which deliveries can be handled by other fulfillment centers, and what impact these decisions will have on revenue and backlog. The system also evaluates other possible decisions, including the cost of renting trucks to expedite deliveries before the approaching storm and how this will affect profits.

Despite the obvious benefits, the technology might seem daunting to anyone who isn't particularly tech-savvy. Palantir has overcome this obstacle by offering AIP bootcamps. These hands-on sessions bring together executives and developers who work hand-in-hand with Palantir's engineers to solve real-world business problems.

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This approach has been extremely successful. Palantir grew its U.S. enterprise customer base by 83% year-over-year in the second quarter and by 13% quarter-over-quarter. Palantir credits these AIP bootcamps with enabling 27 new deals valued at $10 million or more—most of them within a few weeks of customers attending one of these sessions.

In addition, a deal completed just last month will see AIP and Palantir’s platforms Gotham, Foundry and Apollo Microsoft'S (NASDAQ:MSFT) Secure the Azure Government Cloud to extend Palantir’s existing government business.

The impact on the company's results is hard to overstate. Second-quarter revenue of $678 million grew 27% year-over-year and 7% quarter-over-quarter, giving Palantir its seventh consecutive quarter of profitability and ushering in its inclusion in the S&P 500. U.S. trading revenue, led by AIP, grew 55% year-over-year, while customer base grew 83%. The segment's remaining business volume (RDV), the value of contracts not yet recognized as revenue, grew 103%.

But the possibilities offered by AI are only just beginning. In Ark Invests Big Ideas 2024Cathie Wood estimates that the software potential associated with generative AI could be worth $13 trillion by 2030. The optimistic forecast even puts it at $37 trillion.

Given the magnitude of this opportunity and its location at the intersection of artificial intelligence and business intelligence, Palantir is well positioned to benefit from this long-term tailwind.

The bulls are running

Don't take my word for it. After Palantir's inclusion in the S&P 500 Bank of America Analyst Mariana Pérez Mora maintained her buy rating on Palantir shares and raised her price target to $50, representing a potential upside of 45% from Monday's closing price.

Mora speaks of a “fundamental misunderstanding” of Palantir's opportunity and calls the company's inclusion in the S&P 500 a “turning point” because institutional investors will be forced to rethink what they think they “know” about Palantir, especially given the company's rapidly improving growth prospects.

To be clear, Palantir is not for every investor. The stock currently trades at 96 times forward earnings and 23 times forward sales. However, its price-to-earnings-growth (PEG) ratio—which takes into account its rapid growth—is less than 1, the standard for an undervalued stock.

Investors who can stomach some increased volatility can rest assured that Palantir is poised to take the AI ​​revolution to new levels, which could benefit shareholders along the way.

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Bank of America is a promotional partner of The Ascent, a Motley Fool company. Danny Vena has positions in Microsoft and Palantir Technologies. The Motley Fool has positions in and recommends Bank of America, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Meet the newest stock in the S&P 500. It's up 430% since the beginning of last year and is still a buy right now, according to one Wall Street analyst. Originally published by The Motley Fool