Palantir Technologies Joins S&P 500, Sparking Investor Interest Amid AI Boom

Meet the Newest Stock in the S&P 500. It Soared 430% Since Early Last Year, and It's Still a Buy Right Now, According to 1 Wall Street Analyst

This artificial intelligence (AI) software specialist will be added to the benchmark S&P 500 index after years of robust growth. The S&P 500 is the best overall benchmark of the U.S. stock market, made up of the 500 largest companies in the country. Given the scope of its member companies, it is considered by many as the most dependable gauge of overall stock market performance. To be included in the S&P 500, companies must meet the following requirements: Palantir Technologies (PLTR 0.17%) is poised be one of the newest additions to the S&P 500, joining the ranks on Sept. 23 and one of just 11 companies added so far this year. Since the beginning of 2023, Palantir stock has surged 430% as the accelerating adoption of generative AI has boosted its revenue and bolstered its profits. Yet, despite its tremendous run, some on Wall Street believe there's a long runway ahead. Let's look at what distinguishes Palantir and whether the stock is still a buy. AI pioneer before AI went viral Palantir has been at the forefront of AI development for more than 20 years. It first created sophisticated algorithms to help the U.S. government and its allies identify and track potential terrorist threats by finding connections between seemingly unrelated data that would lead to would-be attackers. However, Palantir soon set its sights on enterprise businesses, where those same AI models could find patterns among reams of data, resulting in actionable intelligence. The company's decades of experience helped Palantir pivot when generative AI went viral last year, creating next-generation AI tools that businesses can actually use. The fruit of those labors is its Artificial Intelligence Platform (AIP), designed to help companies make data-driven decisions. In one demo video, Palantir demonstrates how AIP harnesses company data to help minimize the impact of shutting down a production line due to an approaching hurricane. The system analyzes existing orders, making suggestions as to which ones to cancel, delay, or accelerate, which shipments can be handled by other fulfillment centers, and what impact those decisions will have on both sales and order backlogs. The system also assesses other potential decisions, including the cost of hiring trucks to accelerate deliveries ahead of the pending storm and how that will affect profits. Despite the obvious benefits, the technology involved might be off-putting to all but the most tech-savvy. Palantir overcame this obstacle by offering AIP bootcamps. These hands-on sessions are attended by executives and developers, who work hand-in-hand with Palantir engineers to help solve real-world business problems. This approach has been wildly successful. Palantir increased its U.S. commercial customer count by 83% year over year and 13% sequentially in the second quarter. Palantir credits these AIP bootcamps with facilitating 27 new deals worth $10 million or more -- most within weeks after customers attended one of these sessions. Furthermore, a deal that was consummated just last month will bring AIP, as well as Palantir's Gotham, Foundry, and Apollo platforms, to Microsoft's (MSFT 0.94%) secure Azure Government Cloud, expanding Palantir's existing government business. It's hard to overstate the impact this has had on the company's results. In the second quarter, revenue of $678 million grew 27% year over year and 7% quarter over quarter, resulting in Palantir's seventh consecutive quarter of profitability -- ushering in its admission to the S&P 500. U.S. commercial revenue, led by AIP, grew 55% year over year while its customer count grew 83%. The remaining deal revenue (RDV) for the segment, which is the value of contracts not yet booked into revenue, grew 103%. Yet the opportunity represented by AI is only just beginning. In Ark Invest's Big Ideas 2024, Cathie Wood estimates that the software opportunity associated with generative AI could be worth $13 trillion by 2030. The bull case is even higher, at $37 trillion. Given the magnitude of that opportunity and its location at the crossroads of AI and business intelligence, Palantir is well positioned to profit from this secular tailwind. The bulls are running Don't take my word for it. In the wake of Palantir's admission into the S&P 500, Bank of America analyst Mariana Pérez Mora maintained a buy rating on Palantir stock while boosting her price target to a Street-high $50. That represents potential upside of 45% compared to Monday's closing price. Mora cites a "fundamental misunderstanding" regarding Palantir's opportunity and calls its addition to the S&P 500 a "watershed moment," as institutional investors will be forced to revisit what they believe they "know" about Palantir, particularly given its rapidly improving growth prospects. To be clear, Palantir won't be a good fit for every investor. The stock is currently selling for 96 times forward earnings and 23 times forward sales. However, its price/earnings-to-growth (PEG) ratio -- which factors in its meteoric growth -- clocks in at less than 1, the standard for an undervalued stock. For investors with the stomach for some increased volatility, Palantir is poised to ride the AI revolution to new heights, which could profit shareholders along the way.

Palantir Stock Will Join the S&P 500 in September. History Says It Could Soar Afterward.

History says Palantir stock could soar after its inclusion in the S&P 500. The S&P 500 (^GSPC 0.75%) index measures the performance of 500 U.S. companies that cover about 80% of domestic equities by market value. The index is generally considered the best barometer for the entire U.S. stock market. Palantir Technologies (PLTR 0.17%) will join the S&P 500 on Monday, Sept. 23, as part of the index's quarterly rebalancing. Also joining the index are Dell Technologies and Erie Indemnity. Those three companies will replace Etsy, American Airlines, and Bio-Rad Laboratories. Palantir stock has advanced 124% over the past year amid widespread interest in artificial intelligence. And history says the stock could move even higher after the company joins the S&P 500 later this month. History says Palantir stock could soar after its inclusion in the S&P 500 Since 2019, a total of 93 companies have been added to the S&P 500. Of those companies, 76 have been members of the index for at least a year. Here's how those stocks performed during their first 12 months post inclusion: The figures change slightly if we go further back. Since 2014, a total of 178 companies have been added to the S&P 500. Of those companies, 161 have been members of the index for at least a year. Here's how those stocks performed during their first 12 months post inclusion: In short, history says Palantir will achieve double-digit returns between 10% and 13% over the 12-month period following its inclusion in the S&P 500. However, investors should bear in mind that every company is different, so generalizing about how new S&P 500 components will perform is unreliable. Moreover, joining the index has zero impact on fundamental financial metrics like revenue and earnings. A study published in 2011 by the Federal Reserve Bank of New York concluded that "index inclusion has no permanent effect on value." To that end, whether Palantir stock goes up or down after joining the S&P 500 depends on the company's financial results and what investors are willing to pay in terms of valuation. Palantir is a leader in artificial intelligence and machine learning Palantir specializes in data analytics. Its Foundry and Gotham platforms let businesses collect data, develop machine learning models, and integrate those digital assets into an ontology. The ontology connects data and models to real-world decisions, such that users can surface insights through analytical applications to improve business outcomes. The company says its "key differentiator is a software architecture which revolves around the Palantir ontology." Last year, Palantir launched a new product called Artificial Intelligence Platform (AIP), which adds support for large language models and generative artificial intelligence (AI) to Foundry and Gotham. The company also revamped its go-to-market strategy around AIP by introducing bootcamps, interactive workshops that help customers develop relevant use cases within five days. In August, Forrester Research recognized Palantir as a leader in artificial intelligence and machine learning platforms. Palantir received the highest score for its current product offering, but competitors Alphabet's Google and C3.ai scored higher in terms of product development strategy. Palantir reported encouraging financial results in the second quarter, beating estimates on the top and bottom lines. Sales increased 27% to $678 million, marking the fifth straight sequential acceleration, and non-GAAP earnings jumped 80% to $0.09 per diluted share. Management also gave third-quarter guidance above what analysts anticipated. "The persistent and unbridled demand for our software, for an effective enterprise platform that makes artificial intelligence capabilities useful to large institutions, shows no signs of relenting," CEO Alex Karp commented in his shareholder letter. Palantir stock trades at a very expensive valuation Going forward, Wall Street expects Palantir's adjusted earnings to increase at 22% annually through 2025. That consensus estimate makes the current valuation of 106 times adjusted earnings look expensive. Generally speaking, analysts agree with that assertion. Palantir has a median 12-month price target of $28 per share, which implies 18% downside from its current share price of $34. I would personally avoid this stock until it trades at a much more reasonable valuation.

Why Palantir Rallied Over 15% This Week | The Motley Fool

Palantir shot up Monday on news the stock would be added to the prestigious S&P 500 index. In addition, the company announced a five-year extension with oil and gas giant BP plc, and hosted its fifth AIPCon, showing off the company's AI platform. The S&P 500 only admits certain companies that meet several criteria, including positive earnings over the past four quarters, a market cap that's greater than $8.2 billion, and a decently liquid stock. It's a prestigious honor for Palantir, and now means investors in S&P 500 index funds will be forced to purchase its shares. That's potentially good news for shareholders, as the three S&P 500 index funds from State Street, Vanguard, and Blackrock are the largest exchange-traded funds in the world. The bulk of Palantir's gains came on Monday after the news was announced Friday. Palantir also announced a five-year extension of its current engagement with BP this week. BP had already been a customer since 2014, using Palantir's "digital twin" simulation for its oil and gas operations. Now with Palantir's year-old AIP platform, BP will incorporate large language models (LLMs) into its workflows for better decision-making. Speaking of AIP, which is Palantir's AI-powered software that harnesses LLMs for tangible business outcomes, Palantir held its fifth AIPCon on Thursday. AIPCon saw over 100 commercial AIP customers attend, with a handful giving presentations as to how these organizations are benefiting from AIP. The S&P 500 inclusion is a testament to Palantir's recent success. However, is the stock a buy now? Palantir now trades at over 33 times sales and 82 times its estimated earnings for next year. So, while the company is seeing an AI-powered acceleration, there isn't much margin of safety in buying the stock at these levels.