Stock Story -
What Happened: Shares of data-mining and analytics company Palantir (NYSE:PLTR) jumped 11.6% in the morning session after the S&P Dow Jones Indices announced that the company would join the index before the start of trading on Monday, September 23, 2024. The S&P 500 is a widely followed index that tracks the performance of the 500 largest companies in the United States. Being included in the index means that Palantir will likely be held by many mutual funds and ETFs, which could potentially drive up demand for the stock.
We note that while buying of the stock could increase, this development does not change the fundamentals of the company. Revenue growth, expense efficiency, and capital intensity of the business, for instance, are not impacted by index inclusion or exclusion, so this is more of a technical tailwind for the stock.
Separately, Palantir announced a five-year extension of its longstanding partnership with BP (LON:BP), building on a decade of collaboration. Under the renewed agreement, PLTR will provide new AI capabilities based on its Artificial Intelligence Platform to enhance BP's oil and gas production operations. This will involve the acceleration of BP's adoption of LLMs (large language models) to improve decision-making.
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What is the market telling us: Palantir’s shares are very volatile and over the last year have had 28 moves greater than 5%. But moves this big are very rare even for Palantir and that is indicating to us that this news had a significant impact on the market’s perception of the business.
The previous big move we wrote about was 27 days ago, when the company gained 5.1% on the news that the Bureau of Labor Statistics reported that the US producer price index (PPI - prices that businesses charge for their goods and services) in July 2024 increased 2.2% year on year, falling compared to the 2.7% y/y growth recorded in the previous month.
The report also revealed a month-on-month growth of 0.1%, below analysts' estimates of 0.2%. In addition, Core PPI (prices excluding food and energy) were flat month on month. PPI is often considered a leading indicator of CPI since what businesses pay tends to be passed through to consumers.
Overall, the data confirmed that inflation is cooling off. This is a favorable data point supporting an interest rate cut by the Fed. Notably, markets expect the first rate cut to be announced during the September 2024 policy meeting.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. With lower interest rates, investors can apply higher valuations to their stocks. We at StockStory remain cautious, as following the crowd can lead to adverse outcomes. During times like this, it's best to own high-quality, cash-flowing companies that can weather the ups and downs of the market.
Palantir is up 105% since the beginning of the year, and at $34.00 per share, has set a new 52-week high. Investors who bought $1,000 worth of Palantir’s shares at the IPO in September 2020 would now be looking at an investment worth $3,585.
