Is Palantir Getting Added to The S&P 500 Index This Friday?

+ a new investment the company made

Welcome back to DailyPalantir! On today’s newsletter, we discuss potential S&P 500 inclusion for Palantir on Friday, updates on Palantir’s short float, and the newest company they have ownership in. Let’s get into it!

S&P 500

Arny tweeted this today, which shows that on March 1st, the S&P500 will rebalance and decide which new companies enter the index and which companies leave:

So the rebalance is happening on March 1st, now the question is — will Palantir be included in it?

First, let’s understand why the S&P500 rebalances:

The primary reason for rebalancing is to keep the index accurately reflecting the broader US large-cap stock market. Over time, the relative sizes (market capitalization) of companies change due to market fluctuations. Rebalancing keeps the weights of companies within the index properly aligned to the market realities. Rebalancing prevents the index from becoming too concentrated in a few companies, thus minimizing risk for index investors.

This rebalancing also needs to happen because some companies don’t fit the criteria to be included in the index anymore and a rebalance allows for new companies that meet the S&P 500 criteria to be added as they grow. So, on the last rebalance in December, Solar Edge left the index while Lulu Lemon and Uber were added.

What Criteria Are Needed to Be Included?

Palantir fits all the requirements, however…

This tweet showed that if Palantir were to get in, they would have one of the lowest institutional ownership floats out of all the companies in the index.

This is my bear case for Palantir not getting in on this rebalance. We know that institutional ownership has gone up post Q4 earnings, but it still is relatively low compared to other companies in the index. As a result, the committee that comes together to make this decision may think Palantir is still too volatile to be included in the indices. I don’t think this is the best argument, but it might be something that happens.

Now, many people have been saying that if Palantir was going to be included this Friday, then there would be more volume and buyside pressure on the stock the week before it enters the index so that fund managers can increase their exposure to the company.

The things is, maybe that already happened…

After earnings, we had extraordinary volume and saw the stock rise 50%. Maybe that actually was institutions buying not only because Palantir had a great earnings, but also because they realized that eventually they would need to buy it anyway because the stock was going to enter the S&P 500.

So, we got a ton of buying pressure over the past month, and that may have been for this rebalance.

On the bull case for this inclusion being a catalyst for the stock, I think we could still see a ton of buying pressure because as I showed in the post above, institutions and fund managers are significantly underweight Palantir compared to other S&P 500 companies, which means we can see more buying once this is announced and potentially see more upside with buyside pressure coming in.

However, that also is the bear case for them not making the rebalance if the committee that decides which stocks enter feel that Palantir is not yet qualified to be in the index. We fulfill every other requirement, so it would be a decision based on that committee.

Regardless of what happens, Palantir will eventually be a part of this index. When it does join, it will have a new level of legitimacy as fund managers will have to buy and understand the company more deeply, and if Palantir can keep executing, they will continue to get more institutional investors purchasing their stock to maintain portfolio balances consistent with the S&P 500.

Short Float Update

Short float is down 10% over the last 2 weeks on Palantir — obviously the stock has shown very strong momentum, institutional ownership went up, and as a result, people are simply more afraid to short it, which ends up being good for Palantir long term.

New Company Palantir Owns

Palantir filed this form last night with the SEC:

So, according to this form, Palantir now owns 5.2M shares of Surf Air Mobility. They were granted 1.8M shares o February 15th as payment for outstanding receivables, meaning they likely got paid in stock to give their software to the company.

Now, who is Surf Air Mobility?

It’s a company ($SRFM) that went public in July 2023 — so it’s not part of Palantir’s SPAC investments. It seems like Palantir gave them a pilot of AIP/Foundry, they had a successful pilot, but weren’t able to pay for the software and paid Palantir in stock instead.

It does say something about a company’s software if you are literally willing to pay for the software by letting them own a stake in you, but Palantir may have seen something unique about the company that was worth taking an equity stake in even if they couldn’t pay.

So, where have we seen something before like Surf Air?

Lilium.

• In 2021, Palantir Technologies announced a partnership with Lilium N.V., a German aviation company specializing in electric vertical takeoff and landing (eVTOL) aircraft.

• The partnership involves Palantir providing Lilium with its Foundry software to help streamline the entire eVTOL manufacturing process.

• Palantir's Foundry platform is designed to integrate with Lilium's engineering, supply chain, production, and quality operations to enhance efficiency and reduce complexity.

Now, Palantir doesn’t own a stake in Lilium anymore, but they may have seen some potential in Surf Air because it is trying to do the same thing — make electric aviation a reality, even if they aren’t exactly like Lilium.

It’s an interesting space — various companies are trying to figure out how to streamline aviation to avoid things like traffic in high density populations. We’ll likely get more clarity on why Palantir invested, but so far this is all we know.

That’s it for today — thank you for reading and I’ll see you tomorrow in your inbox!