Palantir Rises Today, Heads to S&P 500 — Is It Time to Buy AI Stock?

Palantir (NYSE: PLTR) stocks post big gains again in Monday’s trading. The company’s stock price was up 11.7% at 11:30 a.m. ET, according to data from S&P Global Market Intelligence.

Palantir soars with news that the company’s stock will be added to the S&P 500 index. Companies in the index must meet criteria for profitability, valuation, trading volume and other factors — and being added to the S&P 500 generally reflects that a business has performed well and seen its value increase.

There is another big advantage to being added to a major index. Exchange-traded funds (ETFs) that track the index will buy shares of the added companies to reflect the change in composition. In turn, this tends to create bullish momentum for companies’ stocks. With Palantir poised to become part of the S&P 500 before the market opens on September 23, the data analytics and artificial intelligence (AI) stock is already benefiting from this momentum.

Is Palantir stock a buy right now?

Palantir’s business has been firing on all cylinders lately. Revenue rose 27% year-over-year in the second quarter, non-GAAP (adjusted) earnings per share rose 80% year-over-year, and the business posted an adjusted free cash flow margin of 21 %. The strong momentum looks set to continue in the near term.

While Palantir began providing national security analytics and other software services to government clients, the company quickly grew its business in the private sector — and its Artificial Intelligence Platform (AIP) software suite has played an important role in impulse. Last quarter, sales to commercial customers grew 33% year-over-year and accounted for 45% of total revenue. The tech major’s fastest-growing business segment will soon be its biggest, and that suggests its sales growth has the potential to surpass already impressive levels.

Even better, Palantir’s business hasn’t fallen hard when it comes to the public sector. Sales to government customers increased 23% year over year in Q2 and were up 11% on a sequential quarterly basis. With geopolitical uncertainty seemingly on the rise, the company could continue to see strong demand in this segment.

Palantir’s growth engine has never looked stronger, and the stock looks like a worthwhile portfolio addition for risk-tolerant investors looking for long-term AI plays. Of course, investors need to consider their personal risk tolerance. Valued at about 95 times this year’s expected earnings, Palantir trades at a heavily growth-dependent valuation and could face huge pressure if volatility hits the broader market.

The story continues

Should you invest $1,000 in Palantir Technologies right now?

Before you buy stock in Palantir Technologies, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now… and Palantir Technologies was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $630,099!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The stock advisor returns as of September 9, 2024

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

Palantir Rises Today, Heads to S&P 500 — Is It Time to Buy AI Stock? was originally published by The Motley Fool