Should I buy Palantir stock for my ISA after a 200% gain?

I’ve got cash to burn in my Stocks and Shares ISA right now and Palantir (NYSE: PLTR) stock has caught my eye. An artificial intelligence (AI) play, it’s one of the hottest stocks in the market at the moment.

Is it worth buying a few shares in the data analytics company for my portfolio today? Let’s discuss.

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An AI stock

I’ve actually had this US-listed growth stock on my watchlist for a few years now. And I’ve covered it a few times here at The Motley Fool.

In the past, I’ve been impressed with the company’s ability to land big government contracts. Not only has it picked up contracts with the FBI and the CIA but it also has done deals with the UK’s NHS.

The reason the company’s come into my focus recently is that it’s having a lot of success with its AIP (Artificial Intelligence Platform) product. This is a platform that allows organisations to rapidly deploy AI across their businesses.

Additionally, the company’s now picking up a lot of clients in the corporate world. Recently, it’s signed deals with the likes of BP, Morgan Stanley, and United Airlines.

Strong growth

The momentum from AIP was illustrated in the company’s Q3 results. For the quarter, revenue was up 30% year on year to $726m with US corporate revenue up 54% to $179m.

On the back of this performance the company raised its guidance for the full year. It now expects revenue to be between $2.805bn and $2.809bn.

We absolutely eviscerated this quarter, driven by unrelenting AI demand that won’t slow down. This is a US-driven AI revolution that has taken full hold. The world will be divided between AI haves and have-nots. At Palantir, we plan to power the winners.

Palantir CEO Alex Karp

What caught my eye was the commentary from management. “This is the software century, and we intend to take the entire market,” wrote Karp.

Clearly, it believes Palantir’s going to play a major role in the AI revolution. And that makes me think I need to have a position here.

High valuation

There are a couple of things that concern me from an investment perspective though. One is that the stock’s up more than 200% over the last year. That’s a huge rise. After that kind of jump, we could see a pullback in the near term as investors bank some profits.

The other’s the valuation. Right now, the price-to-earnings (P/E) ratio here’s about 156. That’s very high and it doesn’t leave any room for error. If growth was to slow due to a drop in government or corporate spending on data and AI, the stock could take a sharp dive.

This happened to me with Snowflake – growth slowed and the valuation came down.

It’s worth noting that the average Wall Street price target for Palantir’s $38. That’s about 35% below the current share price.

My move now

Given the valuation, I’m going to keep Palantir on my watchlist for now. I’m keen to own the stock but I’m not going to chase it after a 200% gain in 12 months.

I’m hoping it pulls back the next time we see some market volatility. If it comes back to around $40-$45, I may pull the trigger and buy some shares.