Here's Why Palantir Stock Rose 12% in October

Shares of Palantir (NYSE: PLTR) gained 11.7% in October, according to data provided by S&P Global Market Intelligence. The AI stock surged higher following the reported end of a major insider trade. Momentum ahead of its November earnings report seems to have kept demand robust as the supply of shares dropped.

Major insider selling concluded in October.

Palantir's billionaire founder Peter Thiel initiated a mass sale of more than $1 billion of his shares in May. Insider sales are highly regulated, so the sale was executed under SEC Rule 10b5-1. This is a special exemption with strict guidelines that allow insiders to unload shares when certain predetermined conditions are met, which prevents them from acting on non-public information.

Image source: Getty Images.

Typically, insider selling attracts negative attention and can drag a stock down. It's not a vote of confidence when the largest shareholders want to reduce their exposure. However, the market digested this news earlier in the year, so the stock price should have already reflected the sale.

Thiel's sale reportedly concluded in early October. Transactions in September and October brought his sales to $1 billion, ending his ability to offer additional shares on the open market this year. Thiel sold more than 12 million Palantir shares at an average price of $36.85 over those trading days.

Insider activity increased the supply of shares available, putting downward pressure on the price. The stock's average daily trading volume is over 50 million shares, so insiders represent a relatively small percentage of the total volume. Still, the removal of supply can drive meaningful stimulus for popular momentum stocks. Following the sharp spike from Thiel's sale, trading volume dipped back down to a relatively low level.

PLTR Volume data by YCharts

Investors bought shares ahead of earnings.

Analyst forecasts were little changed for Palantir during October. There wasn't any major news about the company's operations that would materially change expectations for future cash flows.

PLTR Revenue Estimates for Next Fiscal Year data by YCharts

Instead, investors seemed eager to increase their stakes ahead of major news. The company reported quarterly earnings on Nov. 4, creating news-driven upside potential for shareholders. The fervor around AI stocks may have cooled from its earlier peak, but the leaders of this emerging software industry are still attracting plenty of attention. This likely fueled bullish expectations ahead of earnings.

Palantir ultimately surpassed analyst forecasts with 30% revenue growth. The company communicated strong demand drivers, sending the stock higher and justifying the optimistic demand for shares in the weeks prior to the quarterly report.

It's hard to ignore the role that momentum is playing here. Palantir's forward P/E ratio climbed from below 60 -- which is already high for some investors -- to nearly 150 over the past six months. That's a hefty price tag, even considering the company's impressive 30% sales growth rate.

PLTR PE Ratio (Forward) data by YCharts