It’s still hard to believe that one of the best AI stocks still goes for around $20 a share. Where Nvidia (NASDAQ:NVDA) stock rocketed to the moon and now trades north of $850 a stub, Palantir stock (NYSE:PLTR) can be had for a double sawbuck.

That’s still equates to a $47 billion market cap, expressing the existence of some 2.1 billion shares outstanding, but it pales in comparison to Nvidia’s $2.1 trillion valuation. It’s clear the market sees better potential returns in one than the other yet would investors be right in expecting the gap to narrow? Let’s find out.

Good but not good enough

Palantir stock is performing admirably. Shares are up 24% in 2024 and 144% higher over the past year. We won’t make additional comparisons to Nvidia here because everyone knows the superlatives (and riches) that have been heaped upon its shares for the past two years. However, with Palantir having been labeled the “best pure-play” stock in AI, it is curious the stock doesn’t seem to reflect that designation.

Part of the reason is the bulk of Palantir’s revenue comes from government contracts, some 55% of the total in 2023. Such dependence, though, is mercurial, as the whims of government budget priorities rule when contract wins flow. While the need for complex field assessments have taken on greater importance in recent years as global tensions and conflicts rise, having the government as your biggest client is not the path to the sort of meteoric growth trajectories AI investors expect.

The company recognizes the sluggishness that’s inherent in the business. “Some of this is due to the continuing resolution and timing of large potential contract awards. But it’s also a function of the (Defense) Department’s pace of scaling their AI and software efforts,” it said.

However, Palantir stock has done a good job of increasingly tilting the balance of revenue away from the government and towards the private sector.  Commercial revenue jumped 32% last year, and for the AI shop’s U.S. enterprise customers, revenue surged 70%. 

Setting the stage for the next leg of growth

CEO Alex Karp told investors, “Our U.S. commercial business continues to be a significant driver of our growth, a trend that we expect to continue.” He described the demand for AI from companies as “unrelenting.” 

It is why Palantir stock has been focused on expanding the reach of its Artificial Intelligence Platform (AIP), which businesses use to extract AI-powered decision-making goals for meaningful, real-world results. Palantir sold out availability for access to AIP in a single quarter, an achievement it thought take at least a year to reach. By the end of 2023, the company delivered over 560 “bootcamps” within 465 organizations.

Pointing to combining AIP with its existing Foundry platform for enterprise, chief revenue officer Ryan Taylor says there is exponential growth potential so that the “total addressable market expands considerably.”

The best still needs to do more

Palantir invested heavily in AI and machine learning for many years, long before they were investing buzzwords. It also pours money into research and development. Last year R&D accounted for almost 20% of Palantir’s revenue, up 12% from the year-ago period. The commitment to continually investing in the technology is what gives PLTR stock a substantial competitive edge. 

The AI stock’s perma-bull Dan Ives of Wedbush Securities, who crowned PLTR stock not only the “best pure-play” in AI but also the “Messi of AI,” referring to the soccer great, recently raised his one-year price target to $35 per share. He sees the market for platforms like AIP to become a $1 trillion opportunity.

Not everyone one Wall Street buys into that, though. Monness, Crespi, & Hardt analyst Brian White recently downgraded Palantir stock to a “strong sell” over what he sees as an “unprecedented generative AI hype cycle.” 

Palantir stock does carry a lofty valuation of 21 times sales. But if you want to see crazy multiples, look at Nvidia, which goes for 35 times sales. If we figure the “right” valuation is somewhere in between, expect Palantir Technologies to exhibit additional growth this year.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.