The success of Palantir (PLTR.N) gave it an opportunity to join the S&P 500 index — a sign that investors not yet bullish on the stock are starting to buy it.

However, this isn't for the faint of heart investors. Palantir's stock price fluctuated a lot, but since the market correction in early August, we have seen strong performance in the company's core business. Since then, the share price has risen 38% to around $34, and the market capitalization is over $76 billion.

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Palantir is not an easy company to understand. It provides a software system that helps customers centrally manage data and makes it easy to analyze information. Government customers, particularly the US Army, use these systems to identify security threats and enhance military operations. Large private enterprises use the system to quickly identify sales opportunities and maximize the efficiency of the cost structure.

Although the growth rate of Palantir's government business has slowed, the growth rate of private businesses is accelerating, especially as companies adopt new methods of data analysis. According to a report by industry research firm Fortune Business Insights, the data analysis market is expected to grow at a rate of more than ten percentage points per year by 2032, and the market size will exceed 1 trillion US dollars.

Palantir's products also protect the privacy of customer data, which is a major differentiating advantage. In the second quarter, the company's corporate sales increased 32% year over year, and total revenue increased 27% to 0.678 billion US dollars.

This growth has a significant effect on the company's profitability, especially as costs fall and profit margins increase. Palantir promotes new tools through “bootcamps” to help customers grow. D.A. Davidson analyst Gil Luria pointed out in an August report that this is equivalent to marketing spending, and its growth rate is expected to slow in the next few years, which will increase profit margins and drive the annual profit growth rate to 20% over the next two years.

Bank of America Securities analyst Mariana Mora said that Palantir's addition to the S&P 500 may be a catalyst for the next rise in stocks. She believes that the inclusion of the index will attract more retail investors.

Institutional investors have always been less interested in Palantir, mainly because the company entered the market through a direct listing rather than a traditional initial public offering (IPO), and has a unique shareholding structure. Although Class F shares account for only 0.05% of the total share capital, they have nearly 50% voting rights. Multi-share structured companies were not approved to join the S&P 500 until April 2023, and the institutional shareholding ratio has increased by 6 percentage points since then. Mora wrote, “Inclusion in the index will attract more institutional investors,” and raised her target share price from $30 to $50.

These factors gave Mora confidence in the company's valuation. Her new target price represents approximately $116 billion in corporate value, which is 29 times the analysts' consensus sales expectations for 2026. This ratio is only about 1.5 times the expected annual sales increase, which is slightly higher than other profitable and growing software companies. Mora explained that Palantir should probably enjoy a premium valuation because the company is growing rapidly and has plenty of cash and little debt, making it in a favorable financial position to invest in key areas such as artificial intelligence.

For investors who bought in a few months ago, Palantir's addition to the S&P 500 is not a reason to sell, but rather an opportunity to continue holding and enjoying profits.