Palantir and MicroStrategy Join Nasdaq-100: AI-Driven Growth and Market Impact

Better New Nasdaq-100 Buy: Palantir vs. MicroStrategy | The Motley Fool

The holidays have come early for a couple of this year's most-watched technology companies. I'm talking about Palantir Technologies (PLTR -1.80%) and MicroStrategy (MSTR -5.41%), software players that have soared more than 300% and 500%, respectively, this year. The Nasdaq-100, an index of the top 100 nonfinancial stocks trading on the Nasdaq Stock Market, invited the two companies to join as of Dec. 23. That's fantastic news for Palantir and MicroStrategy and their investors for a couple of reasons. First, funds that track the Nasdaq-100 have to buy shares of these companies so they can continue accurately tracking the index. Second, inclusion may be seen as a sign that these companies have made it into an elite group -- and that may boost investors' confidence in them. So, you might be thinking of buying one of these technology stocks in the days leading up to their Nasdaq-100 entrance. Which makes the better buy? Let's find out. Palantir is a software company that helps government and commercial customers make better use of their data so that they can gain in efficiency and even make game-changing decisions. The company last year launched its Artificial Intelligence Platform (AIP), and demand has soared, resulting in record profit for Palantir in the most recent quarter. The company, traditionally associated with government contracts, has made great progress in the commercial area in the past few quarters -- with commercial growth even surpassing the still-strong double-digit growth of government revenue. For example, in the latest quarter, U.S. commercial revenue rose 54%, while U.S. government revenue growth advanced 40%. And the rapid growth in commercial customers along with demand for AIP suggest we may be in the early stages of this growth story. Just four years ago, Palantir only had 14 U.S. commercial customers, and the company now has almost 300. That's impressive, yet leaves plenty of room for expansion ahead. The stock looks expensive at 200x forward earnings estimates, but its forward PEG ratio, a measure that considers earnings growth, shows the stock still may be reasonably priced. A PEG ratio of over 1.0 suggests a stock is overvalued -- Palantir's is 0.6. MicroStrategy was started as a software company focused on data and analytics, and this continues to be part of the business. For example, MicroStrategy offers customers its MicroStrategy ONE platform, an artificial intelligence-driven analytics system to power efficiency and help clients make better decisions. But this business hasn't been a winner for the company, and the recent quarter offers us a taste of that: Software revenue slid 10% to $116 million during the period. And the company's net loss deepened year over year to more than $340 million. In recent times, though, when investors think of MicroStrategy and consider investing in the company, they don't necessarily think of the software business and instead look at another area -- one where the company is excelling. And that's in Bitcoin investing. MicroStrategy even calls itself "the world's first and largest Bitcoin treasury company." This started when founder Michael Saylor announced in 2020 that the company would make its first Bitcoin purchase with $250 million. Since that time, Saylor has led the company through more and more Bitcoin buys, and MicroStrategy held 279,420 Bitcoins as of Nov. 11. They're valued at $29 billion as of this writing. MicroStrategy clearly has grown its investment as the value of Bitcoin has increased over the past few years, and many investors have viewed buying MicroStrategy stock as a way to bet on the top cryptocurrency. The key word here is "software company." Both players operate in this area, but only one of them is growing there right now, and that's Palantir. Yes, MicroStrategy has seen its Bitcoin investment take off, and the company could win as a Bitcoin treasury player over time. But in the meantime, risk is high, with MicroStrategy's fortunes tightly linked to the path of Bitcoin. MicroStrategy has increased debt, and the company even announced a new plan in October to sell $21 billion of equity and $21 billion of fixed-income securities -- all to finance more Bitcoin purchases. All of this means that right now, for investors seeking growth and aiming to minimize risk, Palantir, as a profitable software company, makes the better new Nasdaq-100 stock to buy.

The Nasdaq-100 Just Announced Its Latest Addition. The Stock Soared 1,090% Since Early Last Year, and It's Still a Buy Heading Into 2025, According to a Certain Wall Street Analyst. | The Motley Fool

This artificial intelligence (AI) pioneer has gained more than 1,000% in less than two years and has a vast runway ahead. The Nasdaq Composite is one of the most widely followed stock indexes in the U.S. The tech-focused index tracks the performance of more than 3,000 stocks listed on its exchange. The Nasdaq-100 is a subset of the index, tracking the performance of approximately 100 of the largest non-financial companies on the Nasdaq stock exchange. To be included in the Nasdaq-100, a company must meet the following criteria: The index announced its annual rebalancing on Dec. 13 after the market close. Palantir Technologies (PLTR 3.92%) was selected to join the Nasdaq-100, "which will be effective prior to the market open on Monday, Dec. 23." Since generative artificial intelligence (AI) went viral early last year, Palantir stock has surged 1,090%. Its decades of experience with AI made it the go-to for AI solutions, likely easing its admission to the index. After its recent surge, some investors are reluctant to buy the stock, particularly given its frothy valuation. One Wall Street analyst believes that view is myopic. Let's review the circumstances behind Palantir's recent parabolic move higher and see whether there's additional upside ahead. Palantir was born from the rubble of 9/11, with the idea that the right AI algorithms could piece together seemingly unconnected bits of information that would uncover a terrorist plot before it could come to fruition. The company soon gained a following among the U.S. intelligence community and our allies, and military and law enforcement agencies quickly adopted its solutions. Over time, the company expanded its offerings to bring its data mining, analytics, and AI know-how to enterprise customers, providing data-driven solutions. The advent of AI early last year brought customers in droves looking for solutions. Palantir swiftly developed a multipurpose tool to answer the call. The Artificial Intelligence Platform (AIP) was the fruit of its labor. By connecting AI to a company's operational data, AIP can provide real-time, company-specific solutions to real-world problems. To counter the knowledge gap existing at most companies, Palantir created boot camps where customers work one-on-one with Palantir engineers to develop these custom-made solutions. Evident in Palantir's financial results, this removes the most common hurdle for businesses wanting to adopt AI. In the third quarter, Palantir generated revenue of $726 million, which grew 30% year over year and 7% sequentially. At the same time, earnings per share (EPS) of $0.06 soared 100%, marking its eighth consecutive quarter of profitability. As impressive as that is, it only tells part of the story. Palantir's U.S. commercial segment, which includes much of its AIP revenue, grew 54% year over year, pushing its remaining deal value (similar to backlog) up 73%. When backlog is growing faster than revenue, it provides insight into future potential, which is rapidly improving. The segment's customer count also soared, jumping 77%. Let's not forget Palantir's foundational government revenue, which grew 40% year over year and 15% quarter over quarter. Another key indicator is the accelerating number of contracts the company is signing. In Q3, Palantir inked 104 deals worth at least $1 million. This included 36 deals worth $5 million or more and 16 worth at least $10 million. It's telling that many of these agreements were reached just weeks after a customer participated in one of Palantir's boot camps. The company has likely only scratched the surface of the tidal wave of demand. According to global management consulting firm McKinsey & Company, the generative AI market is expected to be worth between $2.6 trillion and $4.4 trillion over the next 10 years. Palantir is well positioned to profit from these brisk secular tailwinds. While there's little question Palantir has a bright future, some investors fear the stock has gotten ahead of itself, and Wall Street seems to agree. Of the 20 analysts who offered an opinion in December, only four rate it a buy or strong buy, nine rate it a hold, and the remaining seven rate it underperform or sell. Those who are bearish on the stock almost universally cite its valuation as the catalyst for their dower outlook. The numbers seem to support that view. The stock is currently selling for 380 times earnings and 69 times sales -- both of which are egregious by any stretch of the imagination. However, the most commonly used metrics fall far short when evaluating a high-growth company. For example, Palantir's forward price/earnings-to-growth (PEG) ratio -- which factors in the company's accelerating growth -- clocks in at 0.63, while any number less than 1 is the standard for an undervalued stock. Wedbush veteran tech analyst Dan Ives remains bullish, maintaining an outperform (buy) rating on Palantir with a $75 price target, though the stock recently eclipsed that target. The analyst expressed "increased confidence in the game-changing AIP strategy with use cases for AI taking hold over the next 12-18 months." He went on to say that Palantir will see "unprecedented demand" as more enterprises adopt and expand the use of the company's AI solutions. Furthermore, while Palantir currently has a market cap of roughly $172 billion, Ives believes Palantir could be "the next Oracle." Given Oracle's market cap of $494 billion, that suggests potential upside of 188% for Palantir. While that's a bold proclamation, it does illustrate the opportunity that exists. To be clear, that vision will take some time to play out if it does. I'm not unsympathetic to the conundrum represented by the conflicting views. For those who still feel Palantir is too expensive, one strategy is to buy a small position that won't break the bank and add to it next time the stock takes a nosedive -- as it undoubtedly will. Another is to employ dollar-cost averaging, which involves buying set dollar amounts of the stock at specific intervals, which results in a lower average cost. Palantir Technologies won't appeal to every investor. However, for those willing to take on some additional risk for potentially explosive gains, Palantir sits at the crossroads of a vast opportunity that could make for a very profitable investment.

Palantir Stock Is Joining the Nasdaq-100 Index, and Super Micro Computer Is Being Booted: What Investors Should Know | The Motley Fool

This move by Nasdaq -- which owns and operates its namesake stock exchange and others -- is part of its annual reconstitution of the Nasdaq-100 index, which comprises 100 of the largest non-financial companies listed on the Nasdaq Stock Market. In 2024, Palantir stock has soared 343% through Dec. 13 versus the S&P 500's 29% return. So, it's easy to understand how a huge, roughly corresponding increase in Palantir's market cap has landed it a place on the Nasdaq-100. The timing of the news release was strategic, as 8 p.m. ET is when after-hours stock trading ends in the United States. I suspect Palantir stock would have gotten a boost had this news been released during either regular or after-hours trading. Along with Palantir, the stocks being added to the Nasdaq-100, launched in 1985, are MicroStrategy and Axon Enterprise. Palantir is a software-as-a-service (SaaS) company that provides AI-powered software over the cloud. Its platforms enable its customers to use their data to increase operational effectiveness and efficiency. Its customers include agencies within the U.S. government and those of our allies and commercial customers. MicroStrategy operates as an enterprise software company, but most investors likely view it as a play on the price of Bitcoin since the company plows money into buying the cryptocurrency. As of Dec. 13, 2024, MicroStrategy stock is up 547%. Axon sells body cameras and other products and services to law enforcement, the military, and consumers. Through Dec. 13, Axon stock is up 150% this year. The three stocks being removed from the Nasdaq-100 are AI server specialist Super Micro Computer (SMCI -3.90%), genomics-focused biotech Illumina, and biotech Moderna, best known as the maker of one of the two mRNA-based COVID-19 vaccines. Shares of Supermicro are up 28% through Dec. 13, 2024, but they've plunged 69% since hitting their all-time high in March. The stock's big drop is partly due to the weakening of some of the company's financial metrics. However, it mainly stems from the fallout following a well-known short-seller's allegations of accounting manipulations and other items of concern to investors. (Short-sellers are those who bet on the price of a stock declining.) Illumina stock has eked out a gain of 6% so far this year, while Moderna stock has plummeted 58%, largely due to a steep fall-off in sales of its COVID-19 vaccine. The reconstitution of the Nasdaq-100 index will become effective prior to the market open on Monday, Dec. 23. A Nasdaq-100 index membership means mutual funds, exchange-traded funds (ETFs), and other financial products based on this index will have to buy shares of Palantir. This increased demand should exert at least some upward pressure on the stock price. Membership in any well-known stock index also increases a company's visibility. Greater awareness of Palantir will widen the pool of potential investors in its stock. Palantir stock investors have had an abundance of good news recently. Notably, the company released a fantastic third-quarter report last month, which sent shares soaring more than 24% the next day. In the third quarter, Palantir's year-over-year revenue and adjusted earnings per share (EPS) surged 30% and 43%, respectively. Both results beat Wall Street's estimates. Moreover, management increased full-year 2024 guidance for revenue, adjusted operating profit, and adjusted free cash flow.