Palantir Technologies (PLTR 0.79%) is one of the most popular artificial intelligence (AI) stocks on the market, especially among retail investors. Shares have advanced 140% year to date, after skyrocketing 340% last year. And the company recently got a big vote of confidence from a Wall Street analyst.

Mariana Perez Mora, who covers aerospace and defense at Bank of America, recently raised her target price to $215 per share, up from $180 per share. Mora’s forecast is now the most bullish on Wall Street, and it implies 17% upside from the current share price of $183.

Here’s what investors should know about Palantir.

Image source: Getty Images.

Palantir is a leader in artificial intelligence platforms

In her recent note, Bank of America analyst Mariana Perez Mora highlighted two qualities that differentiate Palantir. First, the company uses what it calls forward-deployed engineers (FDEs), developers that work directly with specific clients to build custom solutions. FDEs are a particularly compelling value proposition as more companies look to integrate artificial intelligence into workflows.

Second, Palantir designed its software around an ontology, a framework that serves as the digital twin of an organization. Think of an ontology as a cause-and-effect diagram that uses digital information to define the relationship between physical objects. It lets clients easily troubleshot, automate, and optimize business processes with artificial intelligence.

In short, whereas most analytics tools are built around data, Palantir designed its software around a decision-making framework. Chief Technology Officer Shyam Sankar told analysts on the second-quarter earnings call, “Our foundational investments in ontology and infrastructure have positioned us uniquely to deliver on AI demand.”

Indeed, Forrester Research ranked Palantir as the technology leader in its most recent report on artificial intelligence and machine learning (ML) platforms, awarding its AIP platform higher scores than similar products from Amazon, Microsoft, and Alphabet. And IDC ranked the company as the market leader in its latest report on decision intelligence software.

Bank of America says Palantir’s revenue could reach $18 billion annually by 2030

Palantir currently earns the majority of its revenue from government customers, and that business segment has regained its momentum due to demand for AI among defense and intelligence agencies. Government revenue growth has accelerated in six consecutive quarters and adoption is expanding beyond the U.S.

NATO earlier this year acquired Palantir’s Maven Smart System, an AI-powered warfighting platform already used across the U.S. military to improve battlefield targeting and supply chains. More recently, Palantir struck a five-year, 750 million-pound deal with the U.K. Ministry of Defense to help the U.K. military develop AI capabilities. That is the largest government contract outside the U.S. to date.

Mora at Bank of America thinks that momentum will continue as more countries consider the Maven Smart System. She estimates government revenue will reach $8 billion annually by 2030. However, Mora expects commercial revenue to eclipse that figure, reaching $10 billion by the end of the decade, as enterprises choose to buy Palantir’s AI operating system rather than build their own.

To summarize, Mora believes demand for artificial intelligence will be a major catalyst for Palantir, pushing total revenue to $18 billion annually by 2030. To put that in context, the company reported $3.4 billion in revenue over the last 12 months, so her forecast implies revenue growth of 35% annually over the next five-plus years.

Palantir is the most expensive stock in the S&P 500 several times over

Palantir is well positioned for future growth. Grand View Research estimates the data analytics market will expand at 29% annually through 2030, driven by demand for artificial intelligence and machine learning tools. As the market leader in decision intelligence software with deep expertise in AI/ML, Palantir is likely to report faster revenue growth than the overall market.

However, that still doesn’t justify the current valuation of 134 times sales. For context, the next closest stock in the S&P 500 is AppLovin with a price-to-sales multiple of 39. That means Palantir could lose 70% of its market value and still be the most expensive stock in the index.

Consider this scenario: If Bank of America is correct in forecasting $18 billion in revenue in 2030, Palantir would still trade at 24 times sales by that point if its stock price does not change at all. Only eight stocks in the S&P 500 currently have valuations above 24 times sales, so Palantir would still be one of the most expensive stocks in the index (by current standards) without any share price appreciation in the next five-plus years.

Here’s the bottom line: Palantir is an excellent business, but the stock is wildly overvalued. That does not mean shares will decline anytime soon. Palantir could very well reach Mora’s target price of $215 per share. But the risk-reward profile is undoubtedly skewed to the downside, so investors should make the prudent choice and look elsewhere. There are plenty of other AI stocks with more favorable risk-reward profiles.