TLDR
- Palantir Technologies (PLTR) has risen nearly fivefold over the past year, adding almost $250 billion in market value and becoming the 25th largest company in the S&P 500
- The stock hit a record high of $130 per share on May 14 and leads the Nasdaq-100 with a 63% year-to-date return as of May 27
- S&P Global will rebalance its benchmark indexes on June 30, which could trigger major moves for Palantir as it transitions from mid-cap to large-cap universe
- Palantir trades at extremely high valuations – 265 times adjusted earnings and over 100 times sales, making it one of the most expensive software stocks in history
- Historical analysis shows that only six other software stocks reached 100 times sales in the past 20 years, and all declined by at least 70% afterward
Palantir Technologies has delivered one of the market’s most impressive performances over the past year. The data analytics company’s stock has risen nearly fivefold, adding close to $250 billion in market value.
The stock reached a record high of $130 per share on May 14. As of May 27, Palantir leads the Nasdaq-100 with a 63% year-to-date return.
Palantir was added to the S&P 500 in September 2024 when it traded with a $68 billion market value. The stock has more than tripled since joining the index on September 23.
Despite being classified as a mid-cap stock, Palantir now ranks as the 25th largest company in the S&P 500. Its current market value sits just under $300 billion.
The company reported strong first-quarter results with revenue increasing 39% to $884 million. This marked the seventh consecutive quarter of revenue acceleration, driven by government segment growth.
Non-GAAP net income jumped 62% to $0.13 per diluted share. Management raised full-year guidance, projecting 36% revenue growth in 2025 to around $3.9 billion.
Palantir’s 2024 revenue grew 29% to $2.87 billion. The company has beaten earnings estimates for six consecutive quarters by an average of 10%.
Rebalancing Risk Looms
Trivariate Research, led by Adam Parker, warns that Palantir’s meteoric rise could work against it. S&P Global will rebalance its benchmark indexes next month, with changes taking effect June 30.
The pending rebalance could trigger substantial rotations out of the stock. Palantir currently holds an 8% weight in the mid-cap universe, creating challenges for active managers.
As Palantir moves into the large-cap universe, active managers will get opportunities to sell. Large-cap managers are also expected to scrutinize the company’s valuation more closely.
This transition could create downward pressure on the stock price. The shift represents a major structural change for institutional ownership.
Valuation Concerns Mount
Trivariate Research called Palantir’s valuation one of the most expensive they’ve studied in 25 years. The stock trades at 73 times forecast sales to enterprise value.
This valuation implies a growth rate of over 40% annually for a decade. No company has grown that fast from this revenue level in the past quarter century, according to Trivariate.
Only 80 listed companies are forecast to grow faster than Palantir over the next 12 months. All of them trade at least 60% cheaper on a sales-to-enterprise value basis.
Palantir currently trades at 265 times adjusted earnings. The stock also reached a price-to-sales ratio above 100 in both February and May.
Historical analysis of software stocks reveals troubling patterns. Only six other software companies achieved price-to-sales ratios above 100 in the past 20 years.
All six eventually declined by at least 70%. The companies included Bill Holdings, Cloudflare, SentinelOne, Snowflake, SoundHound AI, and Zoom Communications.
The average peak-to-trough decline for these stocks was 81%. If Palantir follows this pattern, the stock could fall to around $23.67 per share from current levels.
Palantir closed at $123.76 on Wednesday, gaining 0.3% even as broader markets declined. The S&P 500 and Dow Jones Industrial Average both fell 0.6%.
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