Why Palantir Technologies Stock Rallied on Wednesday

Palantir Technologies (NASDAQ: PLTR) stock charged higher on Wednesday, climbing as much as 6.8%. As of 3:21 p.m. ET, the stock was still up 6%.

The catalyst that sent the artificial intelligence (AI) software and data mining specialist higher was a little love from Wall Street.

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A reversal of fortune

Palantir had been on fire, climbing as much as 1,250% during the preceding two years before it reached its zenith last month. Since then, the stock has taken it on the chin, falling as much as 32%. And therein lies the opportunity.

William Blair analyst Louie DiPalma, a longtime Palantir bear, reversed course on Wednesday, upgrading the stock from underperform (sell) to market perform (hold), though he didn't supply a price target. The analyst cited "the 33% [Department of Government Efficiency]-driven sell-off from $125 to $84 over the past three weeks" for his change of heart.

The analyst points out that the stock remains "frothy with potential downside risk of greater than 40% on government contract delays," but goes on to say, "there have been positive developments." DiPalma cites Palantir's robust revenue growth and increasing operating margins, which he calls "the highest in all software." In a rare mea culpa, the analyst admits, "We did not fully appreciate Palantir's operating leverage and ability to grow with minimal hiring."

Is Palantir a buy?

At 160 times forward earnings and 56 times forward sales, Palantir still isn't cheap yet. However, the stock's forward price/earnings-to-growth (PEG) ratio -- which factors in the company's impressive growth -- recently declined to 0.8, when any number less than 1 suggests a stock that is fairly valued.

Given its recent decline and strong runway for growth ahead, it might finally be time to start looking at Palantir.

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Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.