Dell and Palantir: Significant growth after announcement of entry into the S&P 500 index
On Friday evening, shares of Dell and Palantir rose about 7% when it was announced that these companies would join the prestigious S&P 500 index. The move was part of a regular reassessment of the S&P Global Index, which tracks the 500 largest publicly traded companies in the United States. Software company Palantir will replace American Airlines in the index, while technology company Dell will replace Etsy.
Shares of companies that are newly added to the S&P 500 often see growth. This is because many funds tracking the index's performance must regularly adjust their portfolios to include the new index members, leading to greater demand for their stocks.
Dell's return to prominence
Dell
DELLFor $DELL+1.5%, a maker of computers and servers, the announcement marks a return to the S&P 500 index, where the company was a fixture from 1996 until 2013. In 2013, company founder Michael Dell decided, along with investment company Silver Lake, to take the company back into private ownership. Dell returned to the stock market in 2018 and has seen steady growth since then. In 2023, Dell's stock is up 90%, driven primarily by growing demand for servers equipped with Nvidia GPUs, which are key to handling AI-related tasks.
Dell said it saw AI server demand of $3.2 billion in the second quarter of 2024, a 23% increase from the previous quarter. This growth shows that Dell has a strong position in server technology, especially given the growing importance of AI in enterprise solutions.
Palantir $PLTR+1.2%: Growth driven by profitability and technology innovation
Palantir
PLTRPalantir, known for its advanced data analytics software tools, went public in 2020 and has seen steady growth since then. It has shown increasing profitability over the past four quarters, which was key to its inclusion in the S&P 500. In the second quarter of 2023, the company reported a profit of $135.6 million, more than quadrupling from the same period in the previous year. This result confirms that the company is effectively using its resources and technology to achieve sustainable growth.
Palantir is particularly valued for its capabilities in working with data for government and military purposes. The firm's founder and CEO, Alex Karp, has built a reputation as a technology patriot who often talks about the importance of using technology to "find the hidden things." This focused approach, coupled with high revenue growth rates, has contributed to Palantir's success and its gradual emergence as a technology leader.
What does inclusion in the S&P 500 mean?
Inclusion in the S&P 500 has several significant implications for companies like Dell and Palantir:
Increased investor interest: Funds that track the S&P 500 need to add newly ranked companies to their portfolios. This move automatically creates more demand for the stocks of these companies, which often leads to an increase in their market value. As mentioned, shares of both Dell and Palantir jumped 7% after the announcement.
Prestige: Inclusion in the S&P 500 is generally considered a sign of success and stability. Companies that make it into this index meet strict financial requirements, including making a profit in four consecutive quarters. This confirms their long-term financial stability and attractiveness to investors.
Wider market reach: Being part of the S&P 500 means a company is more visible to global investors and institutions that track the index. This leads to greater liquidity for the stock and facilitates access to new investment opportunities.
Increased shareholder value: Historically, companies that join the S&P 500 tend to achieve above-average stock growth, especially shortly after inclusion. This is due in part to increased interest from funds and investors who adjust their portfolios to include new index members.
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