Palantir Technologies (PLTR -10.08%) has been one of the biggest stock market winners in recent times. The software company soared more than 340% last year for the best performance in the S&P 500 -- a benchmark that it had just recently joined. This stock has scored tremendous gains thanks to the earnings performance of the company.

This tech player has carved out a valuable spot in the artificial intelligence (AI) space, and this has translated into high demand for its products and significant revenue growth across its two main customer groups. On top of this, Palantir just reached a key milestone that also could offer reason to be optimistic about the stock.

Still, investors have worried about the stock's valuation, which has taken off and reached sky-high levels. Considering all of this, is Palantir a buy right now?

Image source: Getty Images.

Palantir's AIP

Let's talk a bit about Palantir's path so far. The company, over its 20-year history, has built software platforms that help customers make better use of their data. In more recent times, Palantir has seized the power of large language models and created its Artificial Intelligence Platform (AIP). This software product integrates AI into the mix, aggregating customers' often disparate data and using this and other information to help them make key decisions, design new strategies, and more.

In its early days, Palantir was most associated with government contracts, but these days, companies and organizations have noticed the potential of Palantir's software -- and are flocking to it for their projects. Meanwhile, government customers continue to line up at Palantir's door, too. All of this means that both government and commercial business is booming at Palantir, with each generating double-digit revenue growth quarter after quarter. In the most recent period, for example, U.S. commercial revenue soared 64%, and U.S. government revenue advanced 45%.

Now, let's consider Palantir's recent milestone. The company has reported nine straight quarters of adjusted operating margin expansion, reaching 45% in the most recent quarter. That compares to adjusted operating margin of 34% in the year-earlier period. The company most recently reported quarterly results on Feb. 3. This steady increase in operating margin is important because it shows Palantir is strengthening its profitability.

Turning revenue into profit

Palantir isn't only growing revenue; it's been able to turn more and more of that revenue into a profit. Generating growth is great, but this combination of growth and profitability is what generally makes a company and its stock winners over the long term. So, clearly, reaching this milestone is important for Palantir and its investors and potential investors.

Still, some may worry that after such enormous gains last year, and trading at mind-blowing 225 times forward earnings estimates, Palantir's upside may be limited. Investors looking for value stocks clearly will find better opportunities elsewhere.

But I don't consider it particularly relevant to focus too much on this metric when evaluating a company like Palantir. While Palantir shares may not soar in a straight line forever, at today's level, they still make a reasonable buy for the investor who aims to hold for the long term.

Though Palantir isn't a new kid on the block, it entered a fresh era of growth in recent times with the release of AIP in 2023 and the boom in commercial business. Only four years ago, Palantir had 14 U.S. commercial customers -- today it has more than 380.

Demand for AIP and growth in the commercial business are in their early days and could generate more and more revenue gains for Palantir in the quarters ahead. And the trend in operating margin shows Palantir has what it takes to turn revenue gains into profit, a point I consider very important when choosing stocks to own for a number of years.

So, the Palantir growth story is far from over, even if stock performance takes a pause at a certain point. All of this means Palantir makes an excellent AI buy for growth investors who plan on holding for the long haul as this exciting story develops.