Why Palantir Stocked Ripped 18.2% Higher Last Month

Shares of Palantir (NYSE: PLTR) ripped 18.2% higher in September, according to data from S&P Global Market Intelligence. The software and artificial intelligence (AI) platform for the military and big business joined the S&P 500 (SNPINDEX: ^GSPC) index, which has investors bullish about the stock. It recently posted strong earnings and profits and is close to an all-time high of around $40 a share.

In the last 12 months, Palantir is up 162%. Here's why it was soaring yet again in September.

Palantir joins the S&P 500 index

While it has zero impact on a stock's underlying business, investors typically rejoice when a holding is added to the S&P 500. There is an idea that index fund investors will now be forced to allocate to the stock, causing shares to levitate higher. It is unclear how much weight to give this purported influence (I say ignore it), but that is what happened to Palantir in September. The company officially joined the S&P 500 on Sept. 23, and you can distinctly see the stock jump on the day it joined.

One other impact on the stock -- and something that could help its business -- is the unfortunate escalation of various wars and conflicts around the globe. Palantir is the software and analytics platform for the U.S. military and its allies, so investors may be thinking that it will see increased spending if military budgets rise and more money gets spent on modern software tools.

At all-time highs, is the stock a buy?

Disregarding the reading of the tea leaves by investors last month, Palantir's business has been performing wonderfully in recent quarters. The company's revenue grew 27% year over year in Q2 of 2024, and profit margins expanded to 16%. Palantir is not only aggressively growing in the military, but also within big business and commercial customers as well.

Palantir looks like a great business. But the valuation is extremely demanding and should turn investors away from investing in the stock. It has a price-to-sales ratio (P/S) of 37, which has only ever occurred for stocks during market bubble periods.

Even if revenue and earnings grow at a quick rate for the next few years, Palantir stock looks much too expensive at current prices. Investors should avoid this one unless shares fall a lot lower from here.

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Brett Schafer 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.