By Martin Baccardax

Palantir Technologies stock has been one of the market's standout performers over the past year, rising nearly fivefold in price and adding nearly $250 billion in value.

But one group of analysts said the stock's meteoric rise, tied in part to the broader artificial-intelligence investment theme, could actually work against it over the coming weeks, and suggested it could be one to bet against heading into the summer months.

Palantir was added to the S&P 500 in the fall of last year, with index manager S&P Global unveiling the addition on Sept. 6, when the stock traded with a market value of $68 billion. It officially joined the index on Sept. 23, 2024. The stock has more than tripled since then and looks set to enter the second quarter's final month with a market value that's just shy of $300 billion.

Trivariate Research, headed by Adam Parker, said this could be a problem.

Palantir, despite being grouped as a mid-cap stock, is now the 25th largest in the S&P 500. S&P Global will rebalance its benchmark indexes next month, with the changes taking effect on June 30. That could trigger some big moves for the stock, Parker and his team cautioned in a note published Wednesday. Palantir stock rose 0.3% to $123.76 even as the S&P 500 and Dow Jones Industrial Average declined 0.6%.

"The pending rebalance at the end of June could make for some material changes to universe constituents and cause some substantial rotations out of the stock," Trivariate said.

Palantir's current 8% weight in the mid-cap universe, Trivariate argued, poses an "extreme challenge for active managers" who may want to sell the stock but can't fight against the support from passive managers who track benchmark indexes.

As Palantir moves into the large-cap universe, however, Trivariate said that not only will active managers get a chance to sell, large-cap managers likely will look more closely at Palantir's valuation.

That could trigger some downward pressure on the stock.

Focusing on the measure of forecast sales to current enterprise value, a figure that includes both equity and debt, Trivariate deemed Palantir's level of 73 times one of the most expensive stocks it has studied over the past 25 years.

"The implied growth rate from this valuation level is over 40% a year for a decade," Trivariate wrote. "No company has ever grown from this level of revenue that fast in the last quarter century."

Palantir's 2024 revenue increased by 29%, with a bottom-line tally of $2.87 billion. Earlier this month, Palantir lifted its 2025 revenue forecast to around $3.9 billion, a figure that would suggest a growth rate of 35%.

Trivariate argued that only 80 listed companies are forecast to grow faster than Palantir over the next 12 months, but all of them are at least 60% cheaper on a sales-to-EV valuation.

"Palantir might be fundamentally awesome, we don't know," Parker and his team wrote, adding that a "rotation is coming out of one universe where everyone will happily sell it, into another universe where managers won't be forced to hold it."

"Sell it now and short it near June 30, unless you are confident that it will grow faster and longer than any company has grown ever," Parker and his team concluded.

That could be a risky bet, however, based on recent attempts to short the stock, which typically involve borrowing shares, selling them in the open market, and buying them back at a cheaper price.

FactSet data showed short interest in the company at just 2.63%, a relatively small amount for a stock with a higher market beta of around 1.76 (anything north of 1 is risky).

Recent data from S3 Partners, a data analytics group, tagged Palantir as one of the least profitable shorts of the year, with those betting against it losing just under $3 billion as of May 21.

The most unprofitable short, interestingly was Bitcoin treasury group MicroStrategy, with investors down just over $3.5 billion. MicroStrategy trades at sales-to-EV multiple of 112.7, making it the most expensive stock on Trivariate's list.

Write to Martin Baccardax at martin.baccardax@barrons.com

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May 30, 2025 21:30 ET (01:30 GMT)

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