Palantir Was Left Out of the S&P 500; It Still Looks Like a Buy

Key Points

• Palantir stock dropped about 2% after the announcement that the company was not among the stocks added to the S&P 500.  
• The decision was offset by news that the company won a $50 million contract with Tampa General. It’s the continuation of a series of wins for the company.
• Despite the short-term setback, Palantir still looks like a solid long-term Buy. 

Palantir Technologies Inc. NYSE: PLTR will not be one of the companies included in the S&P 500 Index. The announcement came on Friday, June 7, after the market closed. In the immediate aftermath of the S&P 500 exclusion, Palantir stock dropped approximately 2%. The stock was up 7.7% for the week before the announcement. 

Crowdstrike Holdings Inc. NASDAQ: CRWD, GoDaddy Inc. NYSE: GDDY, and KKR & Co. NYSE: KKR will join the index on Monday, June 24. They will replace Robert Half Inc. NYSE: RHI, Comerica Inc. NYSE: CMA, and Illumina Inc. NASDAQ: ILMN.  

The S&P 500’s Decision is For Now, Not Necessarily Forever 

The S&P 500’s decision makes Palantir 0 for 2 since the company earned the right to be considered in the index. Palantir shareholders are disappointed that PLTR stock was not included in the S&P 500. However, this seems more like a temporary setback than a permanent exclusion.

Analysts expect Palantir’s inclusion into the S&P 500 to produce many benefits. One of those is a more stable shareholder base as institutional ownership increases. Currently, institutions own only about 45% of the PLTR stock float.  

In theory, a more stable ownership base would reduce much of the stock’s volatility, expanding the company’s price-to-earnings (P/E) multiple.  

Furthermore, a stock’s price generally rises upon inclusion into the S&P 500 as investors of all stripes have renewed confidence in the company’s long-term growth outlook.  

Palantir is Truly a Leader in AI 

When it comes to artificial intelligence stocks, Palantir stands apart. The company has had AI tools for years. Its latest tool, AIP (Artificial Intelligence Platform), may lack creativity in its name, but it more than makes up for that with what it offers customers. Specifically, it allows companies to integrate all their data flows (even the ones that are often deeply buried) into a single location.

This helps companies make decisions based on the most current information. It also allows the integration of large language models for further automation and workflow streamlining.  

Why More of the Same is Good for Palantir 

If you’ve followed Palantir for any length of time, this feels like another chapter in the “what does the company have to do” narrative that’s been in place since Palantir went public via a direct listing in 2020. 

For example, two days before the S&P 500 announcement, Palantir announced a $50 million contract with Tampa General Hospital. This will continue the long-term partnership the two companies have had as they try to define a vision for the future of AI in health care.  

This wasn’t Palantir’s only recent win. On May 30, the company announced it had received an initial $153 million order from the U.S. Department of Defense (DOD) Chief Digital and Artificial Intelligence Office (CDAD) to make licenses of Palantir’s AIP platform available across the DOD. The award has the potential to grow to $480 million over five years.  

What to Do with PLTR Stock 

These contracts are significant because they provide more evidence that Palantir may be able to justify its growth expectations. The biggest knock on Palantir is that its price-to-sales ratio of 23.3 is identical to its current growth rate. That suggests that PLTR stock is overvalued, as it trades at its June 7, 2024, closing price of $23.31. 

But that begs the question: Where do you expect Palantir to be in one, five, or ten years? If you have the time to wait, dollar cost averaging to PLTR stock is a solid strategy that lets you ignore short-term price movement.  

On the other hand, traders may want to buy PLTR stock at the absolute best price they can. In that case, the last several months have shown Palantir forming a solid support base of around $20.56. That would be a price target to shoot for. However, take note that Palantir reports earnings on August 5, 2024. That is approximately one month before the S&P 500 will report its next list of stocks that will be added/removed.