The sharp selloff in Palantir Technologies Inc. shares over recent weeks just prompted one former bear to abandon that stance.

William Blair’s Louie DiPalma upgraded Palantir’s stock to market perform from underperform on Wednesday, following a roughly 30% decline over the past three weeks through Tuesday’s close. The stock rallied nearly 7% on Wednesday.

DiPalma, once a vocal skeptic of the stock, still has concerns about Palantir, namely its ”frothy” valuation at about 100 times 2026 estimates for free cash flow. That’s already come down from about 125 times estimates as a result of the recent selloff, and DiPalma thinks it could contract even further if revenue growth starts slowing sharply.

But he also said that his “thinking on Palantir’s valuation has evolved.”

“One of our biggest pushbacks on Palantir has been its outlier premium valuation,” he wrote. “Given the market exuberance for AI companies (OpenAI was recently valued at $300 billion-plus) and the resiliency of Palantir’s premium multiple, we are adapting our approach to valuation. Investors may continue to assign Palantir an ‘AI premium.’”

He also noted some “positive developments,” for Palantir. For instance, Palantir has a “rich AI pipeline,” and DiPalma thinks its bookings last quarter were weighted more toward the back half of the period. That’s encouraging for first-quarter numbers, he wrote.

Further, the company’s government business looks “stickier” than he originally thought. Palantir continues to command operating leverage as it dramatically expands revenue despite little growth in its head count. Revenue was up 50% from 2022 to 2024, but head count only increased 3%, DiPalma noted.

”Though Palantir will likely miss its original 2025 revenue guidance from August 8, 2022 of $4.5 billion by a wide margin, its margin expansion has been extraordinary,” he added. “Palantir has been able to leverage its mind share to assist in customer acquisition.”

Even though Palantir’s stock is off peak levels, it’s still up more than 250% over the past year, and DiPalma acknowledged that “if the market reverts to risk-on mode,” Palantir’s stock could reclaim its highs. But he’s more comfortable being on the sidelines, as he and his team “expect shares to be range-bound over the next year with continued elevated volatility given the puts and takes.”