(Reuters) -Palantir Technologies ( PLTR ) shares rose 5% before the bell on Tuesday, after strong demand for its AI-powered services across governments and commercial businesses prompted an increase in its annual revenue forecast.

Investors have been betting big on the data analytics and defense software company's military-grade artificial intelligence tools and services, which have propelled its shares to more than double in value this year, making them the best performer on the S&P 500 index through last close.

"Palantir's ( PLTR ) staggering growth is showing no signs of slowing... and (its) ability to grow at scale has been underestimated by a large cohort of the market," said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

The company raised its annual revenue forecast for the second time this year and above Wall Street estimates.

Sales to the U.S. government jumped 53% to $426 million, representing more than 42% of the total second-quarter revenue of about $1 billion.

Last week, the U.S. Army said it might spend up to $10 billion on Palantir's ( PLTR ) services over the next decade.

The Denver, Colorado-based company, co-founded by Peter Thiel, expects expenses to rise significantly in the third quarter due to seasonal hiring amid rising competition among industry leading tech firms to poach top talent, as businesses rapidly look to adopt AI.

The stock trades at over 200 times its 12-month forward earnings estimates, compared with AI giant Nvidia's ( NVDA ) 34.81 and S&P 500's 27.44.

Jefferies analysts cautioned that there is a "disconnect between valuation and achievable growth".

At least six brokerages raised their price targets on the stock after the results.