The S&P 500 is an index that includes the 500 largest companies in the United States. It is widely considered a reference point for the overall health of the market and provides a detailed overview of the performance of the world’s largest companies.
Inclusion in the S&P 500 is a major milestone and a huge endorsement for companies. However, the eligibility requirements for inclusion in the index are not an easy task.
Artificial intelligence (AI) specialist. Palantir Technologies (NYSE:PLTR) has been eligible for inclusion in the S&P 500 for some time – but for now the company remains outside the index.
With the index’s next rebalancing scheduled for June, should you consider buying shares of Palantir now? Let’s break down Palantir’s case for inclusion in the S&P 500 and assess whether the stock is a good buy right now.
How does a company get included in the S&P 500?
There are many factors that go into determining a company’s suitability for the S&P 500. Factors such as the stock exchange on which the stock is listed and the overall size of the company by market capitalization are common variables that play a role in assessing the suitability of a company.
However, one of the most important variables revolves around profitability. In particular, the sum of the company’s profits over the last 12 months must be positive.
The chart shows Palantir’s net income based on generally accepted accounting principles (GAAP) for the most recent quarters. Investors can see that Palantir’s earnings have been positive for the last five quarters in a row.
Should you buy Palantir stock before the next S&P 500 rebalancing?
When Palantir finally joins the S&P 500 later this year, I expect the stock to experience an upward trend. Why?
Well, it’s very likely that inclusion in the S&P 500 index will put Palantir on the radar of more institutional investors. Therefore, the company’s hedging by investment banks and interest rates by hedge funds could start to rise.
However, buying a stock for speculative reasons is not sound financial judgment.
Palantir is becoming an artificial intelligence (AI) superstar.
One of the biggest topics that moved the capital markets last year was artificial intelligence (AI). While many investors are intrigued by the progress of the “Magnificent Seven” members Microsoft, alphabet, Amazon, Nvidia, Tesla, MetaplatformsAnd AppleThere are many other companies that are proving to be huge disruptors in the AI space.
Palantir made a splash in the AI space last year with the release of its fourth software suite, the Palantir Artificial Intelligence Platform (AIP). Since its launch last April, customers have publicly demonstrated how AIP will impact their business – and given investors a preview of the number of use cases Palantir’s products cover.
Palantir’s position in the AI space does not go unnoticed. The stock is up nearly 170% in the last year and trades at a price-to-sales (P/E) ratio of 23.5 – certainly a premium compared to other software-as-a-service (SaaS) companies.
However, I still think Palantir is a compelling long-term buy. The company’s consistent profitability really helps Palantir stand out from other high-growth SaaS stocks – many of which are still burning cash. Additionally, I am optimistic that further revenue growth is on the horizon as the company leverages AIP to collaborate with other leading AI and cloud developers.
While the stock isn’t dirt cheap, I think the premium is justified, and I’m optimistic about Palantir’s growth prospects as the long-term, secular themes driving AI play out.
While being included in the S&P 500 would be a nice milestone, the point here is that Palantir represents a strong, compelling opportunity in the high-growth and highly competitive AI industry. And while I think Palantir has a good chance of making the S&P 500 this year, the topics covered in this article show that there are more sensible reasons to buy Palantir stock that are tied to the company’s actual fundamentals are.
Overall, I see Palantir as a strong company with robust long-term growth. Using dollar-cost averaging is a smart strategy for adding to an existing position or opening a new one.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions at Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies and Tesla. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
Should you buy Palantir stock before the next S&P 500 rebalancing in June? was originally published by The Motley Fool