RBC: The market is waiting for a split in Palantir shares after rising 150% this year. What it means

Investors are waiting for a stock split in commercial and defense AI developer Palantir, an RBC analyst survey showed. It remains the "most pressing topic" concerning the company, he noted. While the possibility of a Palantir stock split has been discussed for months, The Motley Fool in September doubted it would happen at the current price, which many analysts and market participants already consider unreasonably overvalued. Wall Street is betting on a 16% drop in Palantir's share price.

Investors expect that military AI developer Palantir Technologies may announce a stock split, said RBC Capital analyst Rishi Jaluria, whose note was cited by Investor's Business Daily. The analyst surveyed investors a week before Palantir's report is scheduled for release on Nov. 3.

"Retail investors remain heavily focused on the possibility of stock splits, and while interest in this topic has waned from last quarter, it remains the hottest topic of discussion," Jaluria wrote.

Companies conduct stock splits - exchanging each old security for several new ones - to reduce the value of each. Palantir has never done this before. While such a move would not affect the company's already extremely high capitalization, it could make its securities more accessible to investors after a sharp rise in stock prices over the past year, Barron's said. The company's management has the examples of other major players in the field of artificial intelligence in front of them: for example, Nvidia, which conducted a 10-to-1 stock split in June 2024, the publication writes. Arista Networks, Palo Alto Networks and Broadcom also organized a split in 2024.

The RBC survey of retail investors also showed "heightened concerns about privacy and ethics" and dissatisfaction with the lack of return of capital to shareholders, Barron's reports.

"With Palantir's $6 billion in cash on its balance sheet, we believe retail investors are becoming disgruntled with the company's reluctance to return capital to shareholders, given the lack of apparent M&A interest,´ explained Jaluria in a statement to Investor's Business Daily. "We cannot rationalize why Palantir remains the most expensive company in our software sector," Barron's quoted the analyst as saying.

Without significantly exceeding earnings expectations and revising forecasts to accelerate growth, "the company's current valuation looks unsustainable," RBC said. The investment bank maintains an Underperform rating on Palantir's stock, and its $45 target price for the securities is the lowest on Wall Street.

As of Monday, October 27, shares of the DOD contractor were trading at a price-to-earnings (P/E) ratio of 234.23, compared to about 23.24 for the benchmark S&P 500 index: this shows how heavily overbought the stock is, Barron's noted. In trading on Oct. 27, Palantir shares hit an all-time high on the exchange. Trading on Tuesday, October 28, ended up 0.22% to $189.6.

Analysts at Citi Research, led by Tyler Radke, reiterated a neutral rating for Palantir shares on Tuesday, noting the company's "overvaluation combined with the risk of more restrained outlook revisions," Barron's reported. The analysts raised their target price on the stock slightly to $190 from $177, which is roughly in line with the securities' current value.

Citi acknowledged that Palantir's second quarter showed "uncharacteristically strong earnings beating expectations and raising guidance." From the bank's upcoming third-quarter reporting, it expects revenue growth in the range of about five percentage points and a more modest increase in its full-year guidance of about three points. That still points to accelerating growth, but on a smaller scale than a quarter earlier, and "is within historical averages and may not meet the inflated expectations formed by last quarter's record 7 p.p. outlook revision," wrote analysts quoted by Investor's Business Daily

The market's expectations from Palantir's report are quite high, the publication adds. Over the past four quarters, the company's sales have grown 30%, 36%, 39% and 48%, respectively. Wall Street analysts forecast third-quarter revenue growth of more than 50% to $1.092 billion, the publication added.

According to MarketWatch, of the 29 analysts tracking the military AI developer's stock, 18 of them recommend holding the stock in their portfolios, seven advise buying, and four recommend selling. The Wall Street consensus price target is $158.8, down 16% from Tuesday's closing price.

Palantir's current share price remains affordable to a wide range of retail investors and options market participants, making a split unlikely, The Motley Fool wrote in September. For example, Nvidia and restaurant chain Chipotle went for a split when their share prices were above $1,000. Alphabet shares were worth $2255 in 2022 before a 20-to-1 split, and Tesla shares were worth about $2000 before a 5-to-1 split in 2020 and about $900 before a 3-to-1 split in 2022, the publication noted.

"Palantir has a long way to go before the board even considers a stock split," The Motley Fool speculated.

This article was AI-translated and verified by a human editor