The “Magnificent Seven” — Nvidia, Microsoft, Alphabet, Amazon, Tesla, Meta Platforms, and Apple — often dominate discussions of high-performing artificial intelligence (AI) stocks. However, data analytics software specialist Palantir Technologies (PLTR 0.18%) has also delivered remarkable results, particularly since AI became a major market trend.
Palantir’s shares surged nearly 340% last year, making it the top-performing stock in the S&P 500 (^GSPC 1.59%). Since going public in late 2020, its shares have increased by over 1,000%. This impressive growth, however, has made Palantir stock quite expensive, potentially limiting the ability of some smaller investors to purchase it. Because of this, some might expect the company to consider a stock split. Despite the logic behind the idea, there are two reasons why Palantir is unlikely to split its stock in 2025.
Palantir Has Earned Wall Street’s Respect
Palantir has been somewhat of an enigma. For almost two decades, the company remained private, supported by venture capital and prominent (but reserved) figures in finance, such as Peter Thiel. Furthermore, Palantir primarily collaborated with the U.S. military, intelligence agencies, and defense agencies on classified projects. As a result, most Wall Street analysts had limited knowledge of Palantir’s internal operations and viewed it more as a government contractor than a software firm.
Wall Street typically dislikes uncertainty, and given the fluctuating nature of Palantir’s public sector revenue, it was not initially welcomed enthusiastically to the public markets. However, the narrative has shifted significantly over the last couple of years. Since the emergence of the AI revolution, Palantir has made a substantial impact in the private sector and established lucrative partnerships with leading tech companies, including Microsoft, Amazon, Meta Platforms, and Oracle. In only two years, Palantir has almost doubled its revenue growth rate, leading to increased margins, consistent free cash flow, and a transition to profitability under generally accepted accounting principles (GAAP). Consequently, the company’s reputation has improved considerably across Wall Street.
According to data compiled by Bloomberg, institutional investors currently hold approximately 54% of Palantir. Key institutional investors include Vanguard, BlackRock, and State Street. Increased institutional ownership is a subtle advantage, as more fund managers are discussing Palantir in public interviews, raising the company’s profile among investors. Last year, Palantir’s market capitalization grew large enough that it was included in the S&P 500 and Nasdaq-100, two indexes that fund managers closely monitor.
A Stock Split Could Be Counterproductive
Companies often implement stock splits after significant price increases. Smaller retail investors may perceive a stock with a high per-share price as unaffordable, especially if their brokerage does not offer fractional shares. In such instances, management might opt for a stock split to attract more potential buyers and enhance the stock’s liquidity.
However, stock splits often trigger considerable volatility. After a split, the lower share price is often perceived as more affordable by less experienced investors. This leads to surges in buying activity, further increasing the company’s market capitalization. While this might give retail investors the impression of investing in a company at a favorable price, they are, in fact, buying the stock at a higher valuation than before the split. Following these initial increases, stocks that have undergone a split sometimes experience sharp declines as traders take profits from the momentum.
This scenario poses a risk for Palantir. If the company were to split its stock, retail investors would likely purchase shares rapidly. This could prompt some hedge funds and wealth management firms to reduce their positions or exit entirely, potentially overextending Palantir’s valuation. This outcome might shift the company’s reputation, positioning it more as a “meme stock” rather than a respected top pick among Wall Street’s most influential fund managers.
Palantir has spent two decades demonstrating its capacity to compete with the largest players in the tech industry. Now that the company is finally viewed as a legitimate force, it is unlikely to take any action that could jeopardize its standing with institutional investors.
