How to Invest in Palantir Technologies Stock

Palantir Technologies (PLTR 3.73%) started as many companies do: Its founders couldn't find the right solution for their needs. In this case, they needed technology that allowed collaboration without sacrificing data security, which led them to build Palantir.

At its core, Palantir Technologies is a software company. It builds digital infrastructure to help organizations better manage their secure data. Its focus on data security has made it a key software provider for the U.S. government and large corporations.

Palantir has also begun leveraging its expertise in data by providing customers with artificial intelligence (AI) solutions to help them get the most from their data. The company launched its Palantir Artificial Intelligence Platform (AIP) in 2023. In just a few short months, the company has seen tremendous demand for this solution, which it believes will be a transformative growth driver.

Palantir's AI-driven growth potential might have you wondering how to invest in its stock. Here's a step-by-step guide on how to buy stock in the data software company and some factors to consider before adding shares to your portfolio.

How to buy

How to buy Palantir Technologies stock

Investors considering buying Palantir Technologies stock will need to take a few steps before becoming shareholders. This four-step guide will show you how to add the data software company to your portfolio.

Step 1: Open a brokerage account

You'll want to open and fund a brokerage account before buying shares of any company. If you need to open one, here are some of the best-rated brokers and trading platforms. Take your time to research the brokers to find the best one for you.

Step 2: Figure out your budget

Before making your first trade, you'll need to determine a budget for how much money you want to invest. You'll then want to figure out how to allocate that money. The Motley Fool's investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years.

You don't have to get there on the first day, though. For example, if you have $1,000 available to start investing, you might want to begin by allocating that money equally across at least 10 stocks and then grow from there.

Step 3: Do your research

It's essential to thoroughly research a company before buying its shares. You should learn about its competitors, its balance sheet, how it makes money, and other factors to make sure you have a solid grasp on whether the company can grow value for its shareholders over the long term. Continue reading to learn more about some crucial factors to consider before investing in Palantir stock.

Step 4: Place an order

Once you've opened and funded a brokerage account, set your investing budget, and researched the stock, it's time to buy shares. The process is relatively straightforward. Go to your brokerage account's order page and fill out all the relevant information, including:

• The number of shares you want to buy or the amount you want to invest to purchase fractional shares.
• The stock ticker (PLTR for Palantir Technologies).
• Whether you want to place a limit order or a market order. (The Motley Fool recommends using a market order since it guarantees you buy shares immediately at the market price.)

Once you complete the order page, click to submit your trade and become a Palantir shareholder.

Should I invest?

Should I invest in Palantir Technologies?

Examining all the data and doing your due diligence is essential before buying shares of any company. This process might confirm your investment thesis or change your mind about buying shares.

Here are a few factors that could lead you to buy shares of Palantir:

• You strongly believe Palantir's stock will outperform the S&P 500 over the next three to five years.
• You're a buy-and-hold investor who plans to own Palantir shares for several years.
• You believe Palantir's AI platform will be a huge growth driver.
• You think Palantir's profitability will continue improving.
• You believe Palantir can grow into its rather lofty valuation.
• You prefer to invest in cash-rich, debt-free companies generating growing free cash flow.
• Investing in Palantir would help diversify your portfolio.
• You like to invest in founder-led companies.
• You don't need dividend income from your investment.

On the other hand, here are some things that might lead you away from buying its stock:

• You're not exactly sure what Palantir does.
• You're not convinced Palantir can deliver market-beating returns in the coming years.
• You think AI is a fad.
• You're a more value-focused investor and think Palantir trades at a very high valuation.
• You already own several technology stocks.
• Given the country's deficits and debt, you're concerned about Palantir's exposure to the U.S. government (more than 40% of its total revenue in the third quarter of 2023).
• You're in or nearing retirement and need income-generating investments.

Profitability

Is Palantir Technologies profitable?

Crunching the data on a company's profitability is crucial to researching a stock. Historically, profit growth is a key driver of stock price returns over the long term. Here's a closer look at Palantir Technologies' profitability.

Palantir Technologies delivered the highest profit in its 20-year history during the third quarter of 2023 at $72 million. That marked a notable improvement from the previous year:

With four straight quarters of profitability, Palantir is now eligible for inclusion in the S&P 500 Index. That's a goal it has been working towards.

Palantir is also generating growing free cash flow. It produced $141 million in excess cash during the first nine months of 2023. That grew its cash balance to more than $3.3 billion at the end of the third quarter, allowing the company to start returning cash to investors via a $1 billion share repurchase program.

The company believes its revenue, earnings, and cash flow will continue growing, driven by robust demand for its AIP. That growing profitability could help drive its share price higher in the future.

Dividends

Does Palantir Technologies pay a dividend?

Palantir Technologies had not yet started paying a dividend as of late 2023. While the data analytics company hadn't started making dividend payments, it had begun returning cash to shareholders.

The company's board authorized a $1 billion share repurchase program in mid-2023. Given that it has only recently started earning a profit and launched a share repurchase program, the company likely won't initiate a dividend anytime soon.

ETF options

ETFs with exposure to Palantir Technologies

Investors who are unsure whether they want to invest directly in Palantir stock can still gain some exposure to the data software company. An alternative strategy is to make a passive investment by purchasing a fund that holds its stock. One of the most common passive investment vehicles is an exchange-traded fund (ETF).

According to ETF.com, 125 ETFs held more than 129.5 million shares of Palantir Technologies as of late 2023. The Vanguard Mid-Cap Index Fund (VO 0.24%) was the biggest holder, with over 16.4 million shares. However, the fund had only a 0.5% allocation to Palantir, so it might not be the best way for investors to gain passive exposure to the data company.

On the other hand, the Renaissance IPO ETF (IPO 2.16%) had the biggest allocation, at 8%. It was the fund's third-largest holding, making the ETF a potentially attractive alternative option for investors seeking exposure to the data software company and other recently public companies.

Stock splits

Will Palantir Technologies stock split?

Palantir Technologies didn't have an upcoming stock split on the calendar as of late 2023. The data specialist had not completed a stock split since its direct public market listing in 2020 and likely won't split its stock anytime soon.

While shares had gained value since their public market listing, they traded in the mid-teens in late 2023. That's well off their peak -- Palantir hit an all-time high of $39 per share on Jan. 27, 2021 -- and a very accessible level for most investors. Shares would have to gain significant value before Palantir would need to consider a stock split.

Related investing topics

The bottom line on Palantir Technologies

Palantir Technologies co-founder and CEO Alex Karp is extremely optimistic about the future. In his second-quarter letter to shareholders, he wrote, "The scale of the opportunity in front of us has never been more significant."

The CEO also noted that demand for AIP has been "unlike anything we have seen in the past 20 years." It could drive tremendous revenue, earnings, and cash-flow growth for the data software company.

However, there's a lot of competition in AI. Investors must ensure they understand the risks before buying shares of Palantir.

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