Will Palantir Technologies' Move to the Nasdaq Help the Stock Climb Even Higher?

Palantir Technologies (PLTR 1.56%) has emerged as one of the standout stocks this past year. Thanks to its impressive performance, the company earned a spot in the S&P 500, and has now transitioned to the Nasdaq stock exchange. This move could position Palantir for inclusion in the even more selective Nasdaq 100 index.

Is this relocation the spark that could propel this dynamic artificial intelligence (AI) stock to new heights?

Reasons the Relocation Could Positively Impact Palantir's Stock

Initially, Palantir's switch from the New York Stock Exchange to Nasdaq may seem minor, given that many leading growth stocks are listed on both exchanges.

However, what excites investors is the potential for Palantir to join the Nasdaq 100 index, comprising the largest non-financial companies on the exchange. With a market cap exceeding $145 billion, Palantir stands a strong chance of making this exclusive list, especially since many companies in the Nasdaq 100 are valued at under $100 billion.

This inclusion would be significant because it would lead to the stock being part of more exchange-traded funds (ETFs) and investment portfolios. Consequently, increased buying pressure from these funds could further boost the stock’s value. Moreover, being part of this prestigious index would reflect positively on Palantir’s extensive achievements and robust growth over the years.

As a leading technology and AI stock, Palantir could garner greater interest from investors who may not be fully aware of its business model. While many investors are already familiar with this year’s top growth stocks, a listing in a well-known index can attract even more attention towards Palantir.

Challenges to Continued Growth for Palantir's Stock

While the potential for heightened visibility exists, many investors are increasingly scrutinizing Palantir's lofty valuation. The stock currently trades at 58 times its revenue from the past year and an astonishing 320 times its profits. These multiples create challenges in justifying the stock's premium price tag.

Many investors seem willing to buy the stock based solely on the assumption that it will continue to rise, influenced primarily by its status as a hot AI stock. This speculative behavior aligns with the Greater Fool Theory, where the hope is that someone else will pay more later.

However, increased attention can have both positive and negative repercussions. As more investors become aware of Palantir, they might also recognize its high valuation, which does not necessarily incentivize them to purchase shares. In fact, some may decide to short the stock, and there has been a recent uptick in Palantir's short interest.

Although short interest had decreased as the company became profitable and grew, the stock's ballooning valuation may now tempt investors to bet against it again.

Furthermore, incorporating a high-priced stock like Palantir into the Nasdaq 100 increases the index's overall valuation, which could deter some investors.

Thus, it is important not to assume that greater visibility guarantees profits for those investing in Palantir.

Be Cautious of Palantir's Elevated Valuation

Even though the company has been exceeding expectations, there is a risk for those purchasing the stock without considering its fundamentals; they may find themselves in a precarious position.

The fundamentals of Palantir's business are sound, but when assessed against its recent earnings and revenue numbers, the stock's valuation appears questionable.

This situation is risky because only one catalyst is needed—be it a downturn in the tech sector, disappointing earnings results, or a shift in the AI market—for Palantir’s shares to suffer a significant decline.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends Nasdaq.

Palantir, Nasdaq, Stocks