Stock-Split Watch: Is Palantir Next?

Over the past two years, investors have been on the lookout for companies involved in the promising technology of artificial intelligence (AI). This market, forecast to reach into the trillions by 2030, is one of this decade's hottest growth areas -- that's because AI has the potential to transform the way the world works, streamlining business operations and daily tasks.

And one company that investors have been piling into for its AI strengths is Palantir Technologies (NASDAQ: PLTR). That's pushed the stock to a gain of 2,500% over the past three years.

In some cases, when a stock soars over a period of months or a few years, the company decides to do something to bring it down to levels that are more accessible to a wider range of investors. The company launches a stock split. Could Palantir be next on the list? Let's find out.

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Investors and stock splits

First, though, you might be wondering why stock splits stir up so much excitement in the investment community. Investors always are eager to know which company may be next to announce such an operation. It's important to note that stock splits don't change anything fundamental about a company, so they, on their own, don't represent a reason to buy a particular stock.

In a stock split, a company issues more shares to current holders according to the ratio of the split, but the total value of their holdings remains the same. The company doesn't gain in market value, and the stock's valuation stays put as well.

The one major change is that the price of each individual share comes down. For example, in a 10-for-1 split, if the stock trades for $1,000 prior to the split, it will trade for $100 after the operation.

Investors like stock splits because, as mentioned, these operations make it easier for an investor to get in on a stock with a smaller amount of cash. (Though fractional shares exist, they aren't available through every brokerage.) And a stock split also might be seen as a sign of confidence from management. If a company is making this move to lower its share price, it likely believes the stock has what it takes to soar once again from that new level.

Any past stock splits?

Now, let's consider the possibility of a Palantir stock split. The company, which launched its initial public offering back in 2020, hasn't yet performed a split -- so we don't know if it's the sort of move the company would potentially make at any point in time.

A look at the stock price shows us that, though Palantir has climbed quite a bit, the stock still trades for less than $200. This remains a level that's generally accessible. Investors may hesitate to buy when a stock approaches $1,000, and we're far from that point.

It's also important to note that a potential stock split wouldn't address the major issue that's stopped some investors from buying Palantir in recent times: valuation. The stock trades for more than 250x forward earnings estimates -- and this wouldn't change after a stock split. So, though the stock might look less expensive at a lower per-share price, its valuation would remain exactly the same.

Palantir's revenue roars higher

Meanwhile, Palantir continues to offer investors positive news quarter after quarter -- with revenue in its government and commercial businesses surging and profit climbing too. Palantir makes software that helps customers aggregate and analyze their data, and harness the power of it to make decisions, design new strategies, and more. Palantir's launch of an AI-driven platform two years ago supercharged revenue as it allowed customers to easily apply AI to their needs.

This momentum may continue since the AI boom is in its early stages, and governments and companies are eager to add this technology to their strategies.

So, Palantir's stock remains at a level that's within reach for many investors, and positive earnings news could drive interest in the stock in the quarters to come. At the same time, valuation remains high, so it might keep some investors away -- but, as mentioned, a stock split wouldn't solve this problem.

All of this means that a stock split wouldn't change much for Palantir at the moment, so I wouldn't expect this top tech company to launch such an operation anytime soon.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.