Palantir (PLTR, Financial) shares rallied more than 4% on Wednesday morning after William Blair analysts upgraded PLTR stock to "Market Perform" rating. The upgrade follows a 33% drop from $125 to $84 over the past three weeks, according to a Wednesday note filed by the firm. The downgrade was triggered by a DOGE-driven selloff that has rattled investor sentiment.

Analyst Louie DiPalma led the note and cautioned that, despite the current frothy valuation, potential downside risk could exceed 40% if government contract delays persist. Palantir hit an all-time high of $124.62 on Feb. 18, yet its share price has steadily declined since that peak, reflecting mounting concerns in the market.

Palantir is expected to negotiate a new U.S. government contract on a centralized payment tracking system that will help with cutting costs and help meet the Department of Defense's annual audit, according to William Blair. In addition, the company has been pursuing other such agreements with the U.S. Army, a move that will underscore its shift to greater focus on government business.

DiPalma highlighted strong revenue growth, with guidance for 2025 at 31% and operating margins projected at 45%.