Palantir Stock Is Up 14% on S&P 500 News: Is It Time to Buy?

Key Points

• Palantir stock is up 14% after the announcement that it will be included in the S&P 500 index starting September 23.
• Its addition to the index should stir institutional buying, particularly from passive ETFs.
• PLTR stock may still be too expensive for some investors but it is still a long-term buy. 

Shares of Palantir Technologies Inc. NYSE: PLTR have climbed more than 14% after the announcement that the company will be included in the rebalancing of the S&P 500 index. The announcement came after the market closed on Friday, September 6, sending the stock sharply higher. In addition to Palantir, Dell Technologies Inc. NYSE: DELL and Erie Indemnity Co. NASDAQ: ERIE will join the index on September 23, 2024.  

The S&P 500's rebalancing is a zero-sum event. That means for every company added, another company must fall off. In this case, Palantir is replacing American Airlines Group Inc. NASDAQ: AAL.  

The Third Time Is the Charm 

To be included in the index, a company has to meet several key benchmarks, including: 

• Have a market cap of at least $12.7 billion 

• Reporting a profit in its latest quarter 

• Reporting a cumulative profit in its four most recent quarters  

Based on that criteria, this announcement wasn’t necessarily a surprise. However, Palantir was turned down for inclusion into the S&P 500 index the first two times it was eligible, so many retail investors who have been with PLTR stock since the beginning were not taking things for granted. 

Why Is This Important? 

The significance of PLTR stock being added to the S&P 500 index is due to the increased buying that will take place with institutional investors. At the time of the announcement, approximately 45% of the stock’s float was owned by institutions. 

However, now that the stock is included in the S&P 500, fund managers who track the index will buy it to reflect this addition in their portfolios. That will be bullish for the stock. One of the largest asset classes to watch is passive exchange-traded funds (ETFs), which have $11.4 trillion in value and use the S&P 500 as a benchmark.  

Palantir’s Biggest Supporter Is Bullish 

Dan Ives of Wedbush has referred to Palantir as the “Lionel Messi of AI.” Ives recently raised his bull case price target for PLTR stock to $50. Ives believes that Palantir’s inclusion in the S&P 500 is “wholly deserved” and remarked that “We believe many skeptics of Palantir have underestimated the profitability and cash flow potential of this name with AIP and the US commercial business a core driver of the business model going forward.” The analyst added, “getting added to the S&P 500 Index is an important moment in the Palantir story that we believe marks a new era of enterprise growth and profitability over the next few years.” 

Ives also reiterated his Overweight rating on PLTR stock and maintained a 12-month price target of $38 which is the highest given by any analyst.

Getting Involved With PLTR Stock 

It’s tricky, and you may not want to go all in at $34 a share. Inclusion in the S&P 500 doesn’t remove the concern that PLTR stock may be overvalued. Palantir is trading at 31x sales and has an eye-watering forward price-to-earnings (P/E) ratio of 182x. Plus, the stock is one of the leading technology stocks and was already up 75% in 2024 before the announcement. Skeptics don’t deny that Palantir is a growing company. But they believe that years of that growth is priced into the stock.  

On the other hand, Palantir has continued to beat revenue and earnings expectations on a sequential and year-over-year basis. Analysts expect the company to grow annual earnings by an average of 30% for the next three to five years. Plus, the company’s balance sheet is strong, with $4 billion of cash and zero debt.  

A key reason for the company’s growth comes from its ontology, which allows both its government and commercial customers to generate significant insights from artificial intelligence (AI). This addresses a key concern that AI has to go from being a novelty to something that will generate profit for businesses.  

If you’re looking to buy PLTR stock at the absolute best price, you’ll be hoping that the market volatility will bring the stock down to a better entry point. However, if you’re a long-term investor who believes, as Ives does, that Palantir may be a $50 stock (or higher) in the future, then it’s safe to start building a position now.