For the first few years as a public company, Palantir Technologies (PLTR -1.42%) struggled mightily to capture meaningful market share in the enterprise software space. The company's sluggish growth and heavy reliance on lumpy federal contracts fueled a perception that Palantir was really more of a government consulting operation and less so a legitimate player in the software arena.
However, on April 7, 2023 Palantir CEO Alex Karp penned an investor letter that forever changed the narrative surrounding the company.
In this note, Karp revealed to the world that Palantir would soon be launching its fourth major suite: the Artificial Intelligence Platform (AIP). Since that shareholder letter was published, Palantir stock has gained 733% as of Jan. 10.
It's not a coincidence that Palantir's skyrocketing share price has come at a time when all things AI are dominating the investment world. With that said, Palantir is not merely benefitting just from the positive narrative surrounding AI. The company has proven that it can compete with tech's largest players, underscoring how game-changing AIP has been for the business.
Considering the sharp rise in its share price in less than two years, Palantir could make an interesting candidate for a stock split. Below, I'll explore reasons why Palantir may or may not split its stock soon.
Why Palantir might consider a stock split
In recent years, mega cap technology stocks including Tesla, Nvidia, Apple, Amazon, Alphabet, and Broadcom have all completed stock splits. As I illustrated in a recent article, each of these stocks experienced outsized and prolonged run-ups in their respective share price prior to completing a split.
Palantir is no different. In 2024, Palantir stock gained 340% and was the top-performer in the S&P 500.
As the chart above shows, Palantir stock really began to kick into a new gear during the last few months of 2024. As such, the company's valuation has become stretched and its climbing share price may make it out of reach for smaller retail investors.
It's important to note that stock splits do not actually change the underlying valuation of a company. However, upon completing a split, the new split-adjusted price is often psychologically perceived as less expensive -- and so a larger body of investors tend to scoop up shares given the appearance of a lower price.
Furthermore, since stock splits increase the number of outstanding shares for a company, that means there are more shares available to trade. By making an investment more accessible to a broader base of investors, Palantir could improve its trading liquidity following a split.
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Why Palantir probably won't consider a stock split anytime soon
Back in November, Palantir changed its trading exchange from the New York Stock Exchange (NYSE) to the Nasdaq (^IXIC -1.63%).
I think one reason for this move was rooted in the company's image. As I alluded to above, some on Wall Street have remained skeptical of Palantir. However, considering the Nasdaq is more a tech-focused index, I saw the transition from the NYSE as a way for Palantir to become more closely affiliated with high-growth names in the technology sector.
Moreover, shortly after its move from the NYSE, Palantir was added to the Nasdaq-100 index -- likely helping the company land on more investor radars. Taking this a step further, now that Palantir has proven that it can generate consistent revenue and profit acceleration and is now considered one of the tech sector's high-growth opportunities, institutional investors should be more inclined to open positions in the stock. For all of these reasons, I don't think trading liquidity is really top-of-mind for Palantir.
On top of this, stock splits take time to assess from a managerial perspective. Stock splits need to be approved by a company's board of directors, and generally speaking, a business will spend countless hours with investment banking and accounting firms running sophisticated modeling scenarios to figure out how a split might impact the business in different ways.
Despite its success since the dawn of AIP in April 2023, Palantir is still very much in growth mode. To me, management should be more focused on scaling the business and acquiring market share rather than spending time looking at theoretical financial analyses following a split. In other words, I see the prospects of a stock split as an intriguing concept, but one that is ultimately more of a distraction and pet project for Palantir.
