Palantir (NYSE:PLTR) The stock is posting big gains again during Monday’s trading. The company’s stock price was up 11.7% as of 11:30 a.m. ET, according to data from S&P global market information.
Palantir is rising in tandem with the news that the company’s shares will be added to the stock market S&P500 index. Companies in the index must meet criteria for profitability, valuation, trading volume and other factors. Addition to the S&P 500 generally reflects that a company has performed well and seen its value increase.
There is another major advantage to being added to an important index. Exchange Traded Funds (ETFs) that track the index will buy shares of companies that are added to reflect the change in composition. This in turn 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 September 23, its data analytics and artificial intelligence (AI) stocks are already benefiting from this dynamic.
Are Palantir Shares a Buy Now?
Palantir’s business has been booming lately. Revenue grew 27% year over year in the second quarter, non-GAAP (adjusted) earnings per share increased 80% compared to the prior year period, and the company posted an adjusted free cash flow margin of 21%. The strong momentum appears to continue in the short term.
While Palantir started out providing national security analytics and other software services to government clients, the company has rapidly grown its private sector business – and its Artificial Intelligence Platform (AIP) software suite plays a big role in the momentum. Last quarter, sales to commercial customers increased 33% year-over-year and accounted for 45% of total revenue. The technology specialist’s fastest growing business segment will soon be its largest, suggesting revenue growth has the potential to soar above already impressive levels.
In fact, Palantir’s business is barely down when it comes to the public sector. Sales to government customers rose 23% year over year in the second quarter and increased 11% quarter over quarter. With geopolitical uncertainty seemingly increasing, the company could continue to see strong demand in the segment.
Palantir’s growth engine has never looked more powerful, and the stock looks like a valuable addition to the portfolio for risk-tolerant investors looking for a long-term AI play. Of course, investors should keep their personal risk tolerance in mind. Palantir is valued at roughly 95 times this year’s expected earnings. Palantir trades at a highly growth-dependent valuation and could face undue pressure if volatility hits the broader market.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Palantir Technologies. The Motley Fool has one disclosure policy.
Palantir Rises Today and Heads for the S&P 500 — Time to Buy AI Stock? was originally published by The Motley Fool