Palantir's Shares Experience a 250% Surge in 2024, Paving the Way Towards Potential Nasdaq-100 Inclusion. Historical Trends Suggest Further Developments.
Shares of Palantir Technologies (PLTR 3.92%) have surged over 250% this year due to solid financial performances and enthusiastic anticipation following its addition to the S&P 500. The company announced its intentions to delist from the New York Stock Exchange and re-list on the Nasdaq exchange, effective Nov. 26. Palantir expects to meet the eligibility criteria for the Nasdaq-100 index after completing this transition.
Upon making this announcement, Palantir shares rose over 11%, and historical data suggests that additional gains might be in store for shareholders if the company is included in the Nasdaq-100.
Historically, stocks have experienced upward momentum following their inclusion in the Nasdaq-100
The Nasdaq-100 is an index that tracks the 100 largest non-financial companies trading on the Nasdaq Stock Market. It is rebalanced quarterly and reconstituted annually. Palantir may join this index within weeks after relisting on the Nasdaq exchange.
While past performance never guarantees future results, I looked at historical data to establish trends. Over the past five years, companies added to the Nasdaq-100 have collectively yielded an average return of 11% within the 12-month period following their acceptance into the index. For the last decade, this number has increased to a 17% average return. Therefore, Palantir investors might expect a potential increase of between 11% and 17% in the year following the company's inclusion in the Nasdaq-100.
Although the company’s transition to a different index may not significantly influence its business, it could potentially improve the stock's liquidity and visibility. However, interested investors should not base their decision to buy Palantir stock solely on the possibility of inclusion in the Nasdaq-100 in the near future. Instead, they should analyze the company's financial profile, growth potential, and valuation.
Is Palantir Technologies an appropriate investment at present?
Palantir specializes in data analytics and artificial intelligence. Its primary platforms, Foundry and Gotham, assist commercial organizations and government entities in managing complex data, creating machine learning models, and retrieving insightful data to enhance decision-making. Moreover, Palantir's AI platform is designed to support large language models.
In the commercial sector, Palantir's Foundry platform assists manufacturers in optimizing production and preventing supply chain disruptions. Meanwhile, retailers utilize this platform to manage inventory and enhance marketing. Government agencies in defense and intelligence rely on the Gotham platform to detect potential threats and curb criminal activity.
Palantir was recognized as a leader in AI/ML platforms by Forrester Research. The AI/ML platform market is predicted to expand at a 41% annual growth rate through 2028, according to the International Data Corporation (IDC). Principal analyst Mike Gualtieri commented, "Palantir has quietly become one of the major forces in this market."
Palantir posted impressive financial results in the third quarter, surpassing earnings projections on both the top and bottom lines. Revenue rose 30% to $726 million, marking an acceleration for the fifth consecutive quarter, while non-GAAP earnings soared 43% to $0.10 per diluted share. Palantir CEO Alex Karp stated, "The release of our latest platform, AIP, has transformed our business."
Despite Palantir capitalizing on the growing demand for AI/ML software and excelling in this sector, the stock is trading at an expensive 175 times adjusted earnings. While the market for AI/ML platforms is expected to expand rapidly, trading at such a high multiple is considered pricey even if earnings grow at an annual rate of 40% through 2028, in line with market forecasts.
Based on these factors, I would suggest investors avoid Palantir stock at this moment. Yet, it is important to note that this doesn't suggest Palantir shares will plummet imminently, but rather that alternative AI stocks trade at more reasonable valuations, which can justify lower risk levels.
Given Palantir's strong performance and potential inclusion in the Nasdaq-100, investors might consider allocating a portion of their investment portfolio towards financing this tech company. If Palantir meets the Nasdaq-100 eligibility criteria and is added to the index, it could lead to substantial returns for shareholders, as historical data suggests a minimum 11% average return within a year.
For those interested in investing in Palantir Technologies, it's crucial to conduct thorough research, not just focusing on the company's potential inclusion in the Nasdaq-100, but also analyzing its financial profile, growth potential, and valuation. Individuals should also consider diversifying their portfolio to mitigate risk.
