Palantir Technologies has had a painful couple of weeks. So painful, in fact, that one of the data-analytics firm’s most persistent critics is becoming cautiously more positive on the stock. 

Palantir stock was upgraded to Market Perform from Underperform by William Blair analyst Louie DiPalma in a research note on Wednesday.

It’s a notable moment. DiPalma has for several years kept a negative outlook on Palantir shares, calling out its high valuation and vulnerability to any slowdown in government contracts. However, the stock’s tumble by more than 30% from recent highs on the back of the Trump administration’s plans to cut military spending has softened his view. 

“While valuation is still frothy with potential downside risk of greater than 40% on government contract delays, there have been positive developments. If the market reverts to risk-on mode, the stock price may return to its prior peak,” DiPalma wrote.

Palantir shares were up 2.4% at $86.42 Wednesday but remain well off their highs of more than $120 in February. DiPalma doesn’t have a price target on the stock.

While concerns about a reduction in U.S. government spending were the trigger for Palantir’s recent tumble, it might not necessarily be a major issue. Its analytics software could be used to help with cost-cutting initiatives and it is still pursuing large potential military contracts, DiPalma noted.

However, the biggest change of thinking from the analyst is around Palantir’s valuation. Its forward price-to-earnings ratio is still eye-watering by conventional measures at around 150 times, according to FactSet, but that might not necessarily count for much amid continued excitement over artificial-intelligence technology.

“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,” wrote DiPalma. 

Still, that doesn’t mean DiPalma has become a bull on Palantir like other Wall Street commentators such as Wedbush’s Daniel Ives. He noted that the stock is still valued at around 100 times the consensus estimates for its free cash flow per share over the next year. That compares with a 72-times multiple for MongoDB, a 51-times multiple forCrowdStrike Holdings, and a 39-times multiple for Snowflake, all fellow software companies.

“A sharp revenue growth deceleration would likely result in valuation multiple contraction, potentially to 40 times free cash flow,” DiPalma wrote.