(Reuters) - Palantir Technologies (PLTR.N) shares surged nearly 20% on Tuesday, as the data analytics software maker's strong fourth-quarter revenue growth led by increased demand for its AI offerings enthused investors.
Revenue from Palantir's commercial segment rose 32% year-over-year to $284 million in the reported quarter, helping the company post $608 million in overall revenue which beat LSEG estimates.
The surge in demand for the Denver, Colorado-based company's AI platform helped offset concern about a slowdown at its largest segment that serves the U.S. government due to uncertainty over the timing of contracts.
The AI program, which was launched in April last year, is the "future" of Palantir, CEO Alex Karp said, banking on strong demand from U.S. companies.
Jefferies upgraded Palantir's shares to "hold" from "underperform," reversing its rating in just a month saying "We are impressed with AI Platform (AIP) ramping faster than our initial expectation."
Palantir also introduced an adjusted free cash flow forecast, targeting between $800 million and $1 billion in 2024, which Jefferies called the "highlight" of the report.
Despite the strong performance, analysts expressed concerns about the lofty valuation of Palantir's shares, which have nearly doubled over the past 12 months.
Palantir's median price-to-earnings (PE) ratio is 53.19, well above the industry median at 17.60, according to LSEG data. A lower PE multiple indicates an attractive investment opportunity.
"Given uneven execution, significant deceleration across its government business, and a lack of AI traction within Europe, the company still has some work to do to justify a higher multiple," Mizuho analyst Matthew Broome said.
Wall Street overall remains on the sidelines with an average rating of 17 brokerages covering stock at "hold" and a median price target of $18.50, implying an 8% drop in shares in the next 12 months from its last traded price of $20.14.