Palantir Stock Surges After Announcing Move to the NASDAQ

In a week when the broad market rally lost some steam, Palantir Technologies Inc. (NYSE: PLTR) ended the week on a tear. PLTR stock was up 9.13% at the close of trading on November 15. The catalyst for the price movement was the announcement that Palantir was leaving the New York Stock Exchange and would be listed on the NASDAQ exchange. The company expects to be trading on the exchange beginning November 26.

By itself, that news doesn’t track with a nearly 10% surge in PLTR stock. However, the company also said it expects to meet the eligibility requirements for the Nasdaq-100 Index. This index is made up of the 100 most valuable stocks in the NASDAQ exchange.

That would mean that any exchange-traded funds (ETFs) that track the Nasdaq-100, such as the popular Invesco QQQ Trust (NASDAQ: QQQ) will have to add PLTR stock to their funds. As you may recall, a similar situation emerged earlier this year when Palantir was admitted to the S&P 500 Index.

At the time, PLTR stock received a similar bump before settling into a range. Is the same set-up emerging here, or is there more upside for the stock?

Palantir May be the Exception

Many investors have been burned by believing in the phrase, “This time it’s different.” This earnings period is bringing the first evidence of skepticism towards the artificial intelligence (AI) economy. Specifically, several companies are reporting that, to date, their AI initiatives aren’t yielding the kind of insights or consumer benefits they would have hoped.

That has investors of a certain age thinking back to the costly mistakes that many companies made during the dot-com bubble. And what a mistake it will be if companies spend millions, or billions, on an AI infrastructure that doesn’t pay off.

But just like with the dot-com era, there were some stocks that not only met the moment, they defined it. And that may be the case with Palantir. The key feature that makes Palantir different is its ontology, which is what makes AI useful for companies.

Palantir is agnostic as to which large language model (LLM) a company uses. But what the company’s government and commercial clients are discovering is that Palantir allows them to mine insights from their data that are more than justifying the expense. And it’s a key reason that Palantir continues to stack contract after contract.

Bubble, Bubble…Is PLTR Stock Setting Up for Toil and Trouble?

If you have any doubt that we’re in the midst of a bubble in equities, consider these statistics:

• The average trailing twelve-month (TTM) price-to-earnings (P/E) ratio of the 10 largest companies in the S&P 500 has reached 49x. This means that if these companies were to pay out 100% of their annual profits, shareholders would get a historically low 2% yield.

To put that into perspective, over the last 15 years, the median TTM P/E ratio of the S&P 500 stocks was approximately 19x. And if you look at the period between 1973 to 1985, the P/E ratio was around 10x. Even with a premium that’s usually given to technology stocks, these stocks can be considered expensive.

• The S&P’s price-to-book (P/B) ratio has recently surpassed dot-com bubble levels and sits at around 5.2. The P/B in Brazil is 1.5. In Europe, the ratio sits at around 2.0.

The point is that stocks are priced for perfection.  But that doesn’t mean that they still can’t move higher. It also means that at some point, investors should expect a correction, and perhaps a significant one.

And if the broader market is in a bubble, Palantir is simply bubbalicious. The stock is trading at a trailing P/E ratio of 329x, a forward P/E of 314x and a price-to-book ratio of 32.1. By any measure, PLTR is an expensive stock.

However, it’s been an expensive stock for all of 2024 and 2023. And if you’ve stayed on the sidelines, you’ve missed the 283% gain that PLTR stock has made in 2024.

Getting Involved with PLTR Stock

There you have it. Palantir has the potential to be a once-in-a-generation stock that may grow into its valuation and become a millionaire-maker stock.

It’s also incredibly expensive by any objective measure. It would be irresponsible to suggest that you should go all in on PLTR stock without any reservations.

Shorting the stock hasn’t worked out well as Palantir has an army of retail investors that rivals popular meme stocks like GameStop Corp. (NYSE: GME). But a pullback in the stock isn’t just likely, it should be welcome to both new investors and those with a long position. If you’re comfortable with options trading, a covered call strategy may work. The Palantir options chain shows a significant number of call options at a price of $65 with an expiration date of December 20.

Otherwise, if you’re long, you’re long. It just comes down to how high you want your average cost to rise. If you’re new to the stock, the strategy here may be to start buying shares and then look for opportunistic pullbacks to average in as you build that position.

Written by Chris Markoch

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