Palantir's S&P 500 Inclusion A 'Watershed Moment,' Says Bank of America, Anticipates 'More Institutional Investors'

With its inclusion in the S&P 500 index, Palantir Technologies Inc. PLTR is entering a new phase that will likely attract a new wave of investors and long-term capital, according to Bank of America.

On Tuesday, the investment bank reiterated a Buy rating and raised the price target for the data analytics and artificial intelligence firm from $30 to $50, as “S&P 500 inclusion provides a watershed moment” for institutional investors.

“We think that becoming a member of the S&P 500 could be highly beneficial to PLTR’s stock volatility. We think that the inclusion would attract more institutional investors, both passive and active,” wrote Mariana Perez Mora, an analyst at Bank of America.

Strong Financials, Strategic AI Leadership

Palantir has become a key player in artificial intelligence, leveraging its deep ties with both government and commercial sectors. Bank of America's revised $50 price target reflects a new valuation approach, which rolls estimates forward to 2026.

This leads to a projected enterprise value of $116 billion, propelling Palantir closer to the top 100 companies in the S&P 500 (from its current ranking in the 165th range).

Mora explained that the elevated multiple derived from the updated price target is justified by Palantir’s position in national security, its leadership in AI platforms, and its opportunistic partnerships.

She also stressed the company’s strong balance sheet, particularly its $3.9 billion net cash position, as a sign of financial strength that sets Palantir apart from competitors.

A Misunderstood Giant in AI

Bank of America draws attention to a significant market underestimation of Palantir's future potential, likening it to AT&T Inc.‘s T early misjudgment of the mobile phone market in the 1980s.

“In 1980, AT&T hired a consultancy company to estimate the market size for cell phones by 2000. The study suggested there would only be 900k users. The actual number of mobile subscriptions in 2000 was more than 100 million,” the report stated.

The analogy underscores how early forecasts often miss the mark on disruptive technologies. Similarly, Palantir's advanced AI capabilities, particularly its Foundry platform, are seen as a vastly underappreciated asset.

Foundry is designed to make data not only accessible but actionable, transforming decision-making processes across various industries.

Bank of America's bullish outlook on Palantir is also supported by its expanding list of partnerships. The company is working closely with major corporations and government agencies, including PwC, Jacobs, Accenture, and Airbus, to broaden its customer base.

“We see Palantir as a beneficiary of rapidly growing demand for Artificial Intelligence (AI)-platforms in both commercial and government end-markets,” the report stated.

Shares of Palantir traded 0.4% lower by 11:15 a.m. ET on Tuesday, after rallying as much as 14.1% a day earlier.

Within the software-related industry, as tracked by the iShares Expanded Tech-Software Sector ETF IGV, Palantir ranks third in year-to-date returns, rising 100%, behind Zeta Global Holdings Corp. ZETA, which skyrocketed 187%, and AppLovin Corp. APP, which surged 116%.

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Photo: World Economic Forum on Flickr