Palantir Technologies: The S&P 500’s Best-Performing Stock of 2024

The most impressive stock performer on the S&P 500 this year isn’t Nvidia or Tesla, but Palantir Technologies, a defense-focused, data-driven company led by eccentric billionaire Alex Karp. Known for its AI capabilities, Palantir has surged amidst the artificial intelligence boom and heightened expectations for defense spending.

A Record-Breaking Year

Palantir has emerged as the top-performing stock on the S&P 500 in 2024, boasting a remarkable 369% return year-to-date through Monday. Despite only joining the S&P 500 in September, much of its meteoric rise occurred in the last three months. This surge was fueled not only by the general market enthusiasm for AI-related stocks but also by heightened optimism regarding defense spending under Donald Trump’s incoming administration. Since Election Day, Palantir shares have soared 58%.

The company’s performance since its inclusion in the S&P 500 has been unparalleled. According to FactSet, its 166% rally during this period is unmatched by any other company on the index. This growth has catapulted Palantir’s market value from $37 billion to an astonishing $180 billion—a nearly ninefold increase from its $20 billion valuation during its 2020 initial public offering.

While Nvidia has also delivered impressive gains, climbing 172% this year as the leader in semiconductor technology for generative AI, it falls behind Palantir’s extraordinary ascent.

Broader Industry Success

Beyond the S&P 500, Palantir is the third-best-performing stock in 2024 among public companies with a market capitalization exceeding $50 billion. The company trails only Applovin, a marketing software firm with a 756% gain, and MicroStrategy, a prominent bitcoin investor with a 477% increase.

What Drives Palantir?

Palantir specializes in AI-powered analytics, providing solutions for managing and interpreting large data sets. Bank of America analyst Mariana Perez Mora noted earlier this year that the company benefits from “rapidly growing demand for AI platforms in both commercial and government end-markets.”

While Palantir is best known for its work with the Department of Defense, its client roster also includes prominent companies such as General Mills and United Airlines. In the third quarter alone, government contracts accounted for $408 million of the company’s $726 million in revenue.

Valuation Concerns

Despite its substantial market capitalization, Palantir’s relatively modest quarterly revenue of under $1 billion raises eyebrows. This disparity makes Palantir the most expensive stock on the S&P 500 based on its price-to-sales ratio. At 67, its ratio is nearly double that of the next-highest company, Texas Pacific Land Corporation, which stands at 37. By comparison, the S&P 500’s median price-to-sales ratio is a mere 3.

However, Perez Mora predicts that Palantir’s “dominant position in the AI-powered software market” will continue to support revenue growth and improve profitability over time.

Controversies Surrounding Palantir

Although Palantir is highly regarded for its advanced technology and impressive profit margins, the company has faced criticism, particularly from human rights groups. Ahead of its IPO, Palantir was scrutinized for its involvement with Immigration and Customs Enforcement (ICE). Critics linked Palantir’s data to raids targeting undocumented immigrants in the U.S.

In a 2020 statement, Karp defended the company’s work, stating that its analytics helped ICE identify “people in our country who are undocumented.” He also acknowledged public concerns, saying, “I sympathize with the legitimate concern about what happens on our border, how it happens, and what enforcement looks like.”

Leadership and Wealth

Palantir’s cofounders have significantly benefited from the company’s rise. Alex Karp, who serves as CEO, now boasts a net worth of $7.5 billion, placing him among the world’s 400 richest individuals. Fellow cofounder Peter Thiel, a long-time tech investor, has a fortune of $15 billion, ranking him as the 148th wealthiest person globally.

Meanwhile, the other two cofounders, Stephen Cohen and Joe Lonsdale, officially joined the billionaire ranks last month.

Political Divisions Among Leaders

Interestingly, Palantir’s leadership reflects divergent political ideologies. Karp, who describes himself as a supporter of “populist-left politics,” backed Vice President Kamala Harris in the recent election. In contrast, cofounders Thiel and Lonsdale are prominent advocates for right-wing politics.

Following Trump’s victory in November, Lonsdale celebrated with the comment, “Daddy’s home.” Over the last decade, Thiel has donated tens of millions of dollars to Republican causes. Reflecting on Thiel’s vocal support for Trump in 2016, Karp told The New York Times this summer, “Because Peter had supported Mr. Trump, it was actually harder to get things done” at Palantir. Thiel did not endorse any candidate in the current election cycle.

A Unique Corporate Culture

Palantir’s close-knit and unconventional culture has also drawn attention. In a conversation with hedge fund billionaire Stanley Druckenmiller at a JPMorgan Chase event earlier this month, Karp described the company as “a rare cult with no sex and very little drugs, and we’re not poisoning anyone.”

Conclusion

Palantir Technologies’ extraordinary rise in 2024 reflects a combination of factors: the booming AI sector, increased defense spending expectations, and the company’s strong foothold in both government and commercial markets. However, its high valuation and controversial history highlight the challenges that lie ahead for this AI-driven powerhouse.