Palantir Technologies (NYSE: PLTR) received a significant boost in its stock price on June 17 after a Wall Street firm initiated coverage on the company. Shares of Palantir, a leading provider of software and analytics platforms to both government and commercial customers, surged more than 6% in a single session.

Independent research firm Argus Research gave Palantir stock a buy rating, setting a price target of $29. This suggests potential gains of 16% from current levels. Argus analyst Joseph Bonner highlighted the growing adoption of Palantir's artificial intelligence (AI) software platform by commercial customers, which could lead to a projected annual earnings growth rate of 19% over the next five years.

Palantir stock has already gained approximately 46% in 2024, following its recent surge. This raises the question of whether it is too late for investors to buy into this AI software play, or if there are still potential gains to be had.

One factor that investors should consider is Palantir's valuation. The company is currently trading at 25 times sales, which is higher than the price-to-sales ratio of 18 at the end of 2023. Additionally, its trailing price-to-earnings ratio stands at 208. The rich valuation raises concerns about volatility, demonstrated by a stock dip after the company's first-quarter earnings fell slightly short of expectations.

However, Argus Research emphasizes that Palantir is a "highly differentiated" company and highlights its commercial business as the next big catalyst for growth. Palantir's leading position in the global AI software platform market, along with the projected increase in AI software spending, makes it well-positioned to tap into the booming demand for AI software.

Palantir's government-related revenue, which constitutes 53% of its total revenue, increased 16% year over year in Q1 2024, reaching $335 million. The company has also secured notable government contracts, including a $480 million contract from the U.S. Department of Defense and a $178 million deal from the U.S. Army, both utilizing Palantir's AI expertise.

However, Palantir's commercial segment exhibits even stronger growth, with a 27% year-over-year increase in revenue to $299 million in Q1 2024. The company's commercial customer base is expanding rapidly, with a 69% jump in the U.S. and a 53% increase overall. Palantir closed 87 deals worth $1 million or more in Q1 2024, indicating a growing interest in its software offerings.

With an impressive total contract value (TCV) of $505 million in the commercial segment and a total remaining deal value (RDV) of $4.1 billion, investors can be optimistic about Palantir's long-term growth potential.

In conclusion, Palantir Technologies' stock has received a boost following the initiation of coverage by a Wall Street firm. The company's strong position in the AI software market, along with its growing commercial segment and government contracts, suggests potential for further growth. Investors will need to weigh the rich valuation against the company's prospects for future success.