Is Palantir Wall Street's Next Stock Split?
The buzz around Palantir (PLTR) potentially splitting its stock is reaching a fever pitch. After Nvidia, Broadcom, and even Chipotle jumped on the split bandwagon last year, the market's been relatively quiet. But could Palantir, the AI darling, be next?
The Siren Song of Stock Splits
Let's be clear: a stock split is purely cosmetic. You're dividing the same pie into smaller slices. A 10-for-1 split means you hold ten times the shares, but each share is worth a tenth of what it was. (It's basic math, really). In theory, it shouldn't impact an investor's portfolio value.
But theory often clashes with reality. Splits can act as a psychological catalyst, sparking rallies. Is it the split itself, or simply that companies considering splits are already riding high? Hard to say. What is quantifiable is the historical bump seen in some stocks after a split announcement. Chipotle, Nvidia, and Broadcom saw their stock prices surge 66%, 121%, and 170% respectively, between the announcement and execution of their splits. Those are eye-popping numbers.
The current speculation swirling around Palantir seems to stem from an RBC Capital analyst noting retail investors' interest in a potential split. And, let's face it, Palantir is a retail investor magnet. Its stock has jumped over 330% in the last year. A split wouldn't be shocking, but banking on it is a fool's errand.
Here's the thing: splits are fleeting. They're a sugar rush, not a sustainable growth strategy. Nvidia and Broadcom continued their upward trajectory because they delivered on their business promises. Chipotle, on the other hand, saw growth stall post-split, with its stock down nearly 30% since the announcement. (A cautionary tale, if ever there was one).
Palantir's Fundamentals: Substance or Hype?
Palantir's business is delivering – at least, for now. They're operating in the black, a rarity in the AI space, and consistently growing sales and earnings by double digits each quarter. They've positioned themselves as the go-to for bespoke AI solutions, sending "forward-deployed engineers" to hand-craft AI systems for each client. This tailored approach fosters stickiness and, coupled with their strong government ties, has fueled impressive growth.
But here's where my skepticism kicks in. A great company doesn't automatically translate to a great investment, especially if the valuation is detached from reality. And Palantir's valuation... well, it's stretched. Very stretched.
The stock's price-to-earnings ratio (P/E) sits above 620. Let that sink in. (That's not a typo). Palantir would need to increase its earnings tenfold just to approach what I'd consider reasonable levels. Even then, it would trade at a P/E almost double that of Alphabet.
I've looked at hundreds of these filings, and this level of exuberance is unusual. Are investors blinded by the AI hype? Are they simply chasing momentum? Whatever the reason, the numbers don't support the current valuation.
And here's the part of the report that I find genuinely puzzling: the disconnect between online sentiment and fundamental analysis. I've been monitoring various forums and social media platforms. The comments are overwhelmingly positive, with retail investors seemingly fixated on the potential for a quick gain from a stock split. But is that a sound investment strategy?
I'd argue no.
A Classic Case of Irrational Exuberance
I'd steer clear of Palantir stock, split or no split. The fundamentals simply don't justify the price.
