What Can We Expect When Palantir Join’s S&P 500?

Palantir Technologies (NYSE: PLTR), the data analytics company known for its work with government agencies, is poised to join the ranks of the S&P 500 on September 23.

The announcement triggered a 16% surge in the PLTR stock price over the past 5 trading sessions, reflecting the optimism, and bullish sentiment that comes with the addition. Whilst initially this addition brings excitement, it is worth considering historical data on the impact of S&P 500 inclusion on stock performance, as it has not always delivered.

Historically, the first decade of the 2000's showed that stocks added to the S&P 500 experienced had outperformed the index by an average of 5%. This no longer seems to be the case in recent times, with groupings such as the Magnificent 7, and previously FAANG taking up large portions of the index themselves.

Despite the initial bounce in stock price that often accompanies the news of S&P 500 inclusion, historical trends suggest caution, as Palantir's stock may take some time to ‘deserve' the additional premium being placed in recent days. Ultimately, Palantir's long-term stock performance is likely to hinge more on its ability to accelerate revenue growth rather than on its S&P 500 inclusion, with markets and individual investors much more likely now to pick individual stocks than just blanket invest in the index versus previous times in history.

For Palantir, driving revenue growth, particularly in its extensive U.S. government contracts, is integral to justifying its valuation. The company's partnership with Microsoft to amplify its government solutions leveraging Microsoft's cloud services is a strategic move in this direction.

While S&P 500 inclusion is a milestone for any company, the historical performance of newly inducted stocks suggests a potential short-term underperformance for Palantir.