Stock-Split Watch: Is Palantir Next?

Artificial intelligence (AI) stocks have soared in recent years, and though that's fantastic, when a stock reaches a particularly high level, it may have difficulty climbing even higher

That's why companies such as Nvidia and Broadcom last year each launched a stock split, a move to bring the price of their s down to Earth

Investors stock splits for a couple of reasons: They make a stock more easily accessible to a broader range of investors, and they also could be viewed as a sign of confidence from the company

When looking for the next potential stock split player, investors generally consider companies that have seen their s skyrocket

And with this, one particular player comes to mind: Palantir nologies (PLTR 1

Could this highflier be next to split its stock

Image source: Getty Images

More s for current holders Before delving into the Palantir situation, though, a quick note on how stock splits work

These operations involve offering current holders additional s of the particular stock, and this is done according to the ratio of the split

But, importantly, the value of that investor's entire holding -- and the market value of the company -- won't change

And neither will valuation, that metric measuring whether a stock is expensive or cheap

So a stock split is purely mechanical and doesn't change anything fundamental a company or its stock

As a result, a stock won't jump or plummet just because a company has announced a stock split -- these operations don't act as a reason to buy or sell

But, as mentioned, they can be positive over time, as they open the opportunity up to more potential investors

They also show that management believes the stock has what it takes to rise again from its new lower price

Palantir's stock split history Now let's talk Palantir

The company's past doesn't offer us clues its view on stock splits, since it's never executed such an operation

This isn't shocking, since the company, though it's 20 years old, just went public five years ago

And the stock actually stumbled through its first couple of years on the market

But it started gathering momentum in 2023, and then, as I said earlier, surged last year, even dering the best performance in the S&P 500, an index it had recently joined

This is all thanks to soaring demand for Palantir's AI-driven software, a platform that helps customers aggregate their data and use it to imve efficiency and make game-changing decisions

In the past, Palantir generated most of its growth through contracts with the U

Government, but in recent times, both government and commercial customers are dering double-digit revenue increases

Palantir had originally built high-performance data aggregation and analysis systems, but the company two years ago launched a new addition to its portfolio: Its Artificial Intelligence Platform (AIP), an AI-driven system that helps customers, as seen in Palantir's AIP boot camps, go from zero to a use case in a matter of hours

This has appealed to both government and commercial customers, as they seek to benefit from AI as quickly as possible

Palantir's valuation blem As a result, Palantir has seen earnings take off and its number of commercial customers soar, from just 14 a few years ago to hundreds today

Now let's get back to our question: Is Palantir ripe for a stock split

Not necessarily, and here's why

A split won't change Palantir's biggest blem: its valuation

Though it would lower the stock price, it nically wouldn't make the stock cheaper by common valuation metrics

Earnings per is adjusted to correspond with the new number of s post-split, and this leaves the valuation figure unchanged

Many other stocks trade for several hundreds of dollars per, so it isn't shocking to see Palantir at its current level

Of course, this could change if Palantir rises significantly in the months and quarters to come

But for now, the top AI stock bably won't be next on the stock split list

Adria Cimino has no position in any of the stocks mentioned

The Motley Fool has positions in and recommends Nvidia and Palantir nologies

The Motley Fool recommends Broadcom

The Motley Fool has a disclosure policy.