Shares of Palantir Technologies(NYSE: PLTR) charged out of the gate on Monday, surging as much as 12.8%. As of 11:58 a.m. ET, the stock was still up 12.4%.
The catalyst that sent the artificial intelligence (AI) software and data mining specialist higher was an announcement the company would be joining one of the premier stock market indexes.
Meet the newest member of the S&P 500
An announcement that dropped after the market close on Friday revealed that Palantir would be joining the S&P 500 at the start of trading on Sept. 23. In a press release that gave details of the reshuffling, S&P Global noted, "The changes ensure that each index is more representative of its market capitalization range."
To be eligible to join the S&P 500, a company must meet the following criteria:
- It must be based in the U.S.
- It must have a market cap of at least $8.2 billion.
- At least 50% of its shares must be publicly traded.
- It must have been profitable in the most recent quarter.
- The sum of the previous four quarters' earnings must be positive.
Stocks often run higher when they initially join the benchmark index because institutional investors and funds that track the major market indexes buy shares to replicate their holdings.
Should investors buy Palantir now?
To be clear, Palantir's joining the S&P is no reason to buy it, but there are plenty of other reasons to be bullish.
The company's decades of AI experience helped it to pivot quickly when generative AI went viral early last year. The company's Artificial Intelligence Platform (AIP) has experienced robust demand thanks to Palantir's boot camps, where engineers work hand-in-hand with companies to help them succeed.
As a result, while Q2 revenue grew 27% year over year, U.S. commercial revenue -- which includes AIP -- grew 55%, and its customer count soared 83%. Furthermore, its remaining deal value (or backlog) surged 103%.
Palantir's valuation, at 96 times forward earnings and 23 times sales, means it's not for everyone. However, its price/earnings-to-growth (PEG) ratio -- which factors in its tremendous growth -- clocks in at less than 1, the standard for an undervalued stock.
I believe Palantir is a buy.
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Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies and S&P Global. The Motley Fool has a disclosure policy.
