Palantir (NYSE: PLTR) stock is making big gains again in Monday’s trading. The company’s share price was up 11.7% as of 11:30 a.m. ET, according to data from S&P Global Market Intelligence.
Palantir is climbing in conjunction with news that the company’s stock is going to be added to the S&P 500 index. Companies in the index have to meet criteria for profitability, valuation, trading volume, and other factors — and being added to the S&P 500 generally reflects that a business has been performing well and seeing its value increase.
There’s another big benefit to being added to a major index. Exchange traded funds (ETFs) that track the index will buy up shares of companies being added in order to reflect the composition change. In turn, this tends to create bullish momentum for the companies’ stocks. With Palantir set to become part of the S&P 500 before the market opens on Sept. 23, the data analytics and artificial intelligence (AI) stock is already benefiting from this dynamic.
Is Palantir stock a buy right now?
Palantir’s business has been firing on all cylinders lately. Revenue grew 27% year over year in the second quarter, non-GAAP (adjusted) earnings per share rose 80% compared to the prior-year period, and the business posted an adjusted free-cash-flow margin of 21%. Strong momentum looks poised to continue in the near term.
While Palantir got its start providing national-security analytics and other software services to government customers, the company has been rapidly growing its business in the private sector — and its Artificial Intelligence Platform (AIP) software suite has been playing a big role in the momentum. Last quarter, sales to commercial customers increased 33% year over year and accounted for 45% of overall revenue. The technology specialist’s fastest-growing business segment will soon be its largest, and this suggests that its sales growth has the potential to climb above already impressive levels.
Even better, Palantir’s business has hardly been slumping 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 the segment.
Palantir’s growth engine has never looked stronger, and the stock looks like a worthwhile portfolio addition for risk-tolerant investors seeking long-term AI plays. Of course, investors have to keep their personal risk tolerance in mind. Valued at roughly 95 times this year’s expected earnings, Palantir trades at a heavily growth-dependent valuation and could face outsized pressures if volatility hits the broader market.
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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 Is Soaring Today and Heading to the S&P 500 — Time to Buy the AI Stock? was originally published by The Motley Fool
