Should you buy Palantir stock as S&P 500 inclusion begins to pay off? 

Palantir’s (NYSE: PLTR) 2024 run is showing no signs of cooling. The stock’s inclusion in the S&P 500 index is seemingly beginning to pay off, with more institutions showing interest in the American software company.

This comes as PLTR has traded at a new all-time high of almost $63. Palantir was trading at $59.18 as of press time, plunging 2.5% in the last 24 hours. On a year-to-date basis, the equity has spiked a whopping 256%.

Approximately 53% of Palantir’s shares are held by major institutional investors, including pension funds, mutual funds, insurance companies, and investment funds, according to data shared by Brett Krieger in an X post on November 14.

Notably, Palantir’s institutional ownership has surged by 9% in the past month, with a significant 3% increase in the past week.

Should you buy Palantir stock? 

As things stand, joining the prestigious index has proven to be a game-changer for Palantir, attracting fresh capital and an impressive stock rally. For institutional investors whose strategies focus on stability and long-term growth, Palantir is potentially becoming an attractive option.

When considering investing in Palantir, the stock’s key fundamentals are encouraging as the company continues to make inroads in artificial intelligence (AI). 

Indeed, the company’s prowess in AI was highlighted in the Q3 2024 earnings report, where revenue was $725.52 million, up nearly 30% year over year.

The stock will likely see further momentum if it meets its Q4 2024 guidance. For the last quarter of 2024, the company expects revenue of between $767 million and $771 million. For 2024, Palantir’s revenue guidance has been raised to between $2.805 billion and $2.809 billion.

Some Wall Street analysts foresee more growth for PLTR in the future based on the company’s inroads in AI. For instance, Wedbush’s Dan Ives referred to Palantir as the “Messi of AI,” noting that the company will be at the center of the AI revolution.

Besides analysts’ outlooks, other key fundamentals support the case for buying Palantir. For example, with the new Donald Trump administration, there is speculation that the U.S. could enter a trade war with China. 

This provides a positive outlook for Palantir, as unlike other AI-focused companies like Nvidia (NASDAQ: NVDA), Palantir generates minimal or no revenue from China. This insulates Palantir’s business from potential U.S. government restrictions on exporting advanced AI products to China, likely boosting the company’s revenue and investor confidence.

Palantir’s business model, which allows it to generate recurring revenue, is a critical factor in its appeal. As a software-as-a-service (SaaS) company, Palantir benefits from high profit margins and predictable revenue streams.

Palantir risk factors 

Despite the bullish outlook for Palantir stock, caution is warranted due to concerns about the company’s valuation. There are concerns that PLTR’s stock price does not reflect its valuation, potentially pricing in future growth. This makes the stock susceptible to a crash if the company fails to meet growth targets.

As reported by Finbold, Jefferies analyst Brent Thill downgraded the stock from ‘Hold’ to ‘Underperform,’ with an expectation that it could drop to about $28.

Wall Street analyst Bernard Zambonin also urged caution ahead of Palantir’s earnings, citing the risks associated with its reliance on strong annual guidance to sustain demand perceptions. 

This uncertainty has split analysts as Raymond James downgraded PLTR to ‘Market Perform,’ BofA Securities upheld a ‘Buy,’ and Canaccord Genuity maintained a ‘Hold.’

This concern is further highlighted by momentum indicators such as the relative strength index (RSI) for overbought territory. As a result, the stock is likely to consolidate or plunge further shortly.

In case of a significant drop, PLTR may present a buying opportunity for long-term investors, as there are expectations that the company will continue building on the AI momentum. However, potential investors should weigh the risks against the stock’s upside potential, especially in light of its valuation and recent price movements.

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