Key Points
Palantir Technologies (NASDAQ: PLTR) has benefited from nearly unprecedented success. The popularity of and the productivity gains driven by its Artificial Intelligence Platform (AIP) led to gains of nearly 2,700% from its low in December 2022.
Consequently, some analysts have speculated about the future of Palantir stock, and one possibility is its inclusion in the Dow Jones Industrial Average (DJINDICES: ^DJI). As investors know, the Dow includes only 30 stocks, and Palantir’s market cap of around $438 billion makes it the 26th largest company trading on U.S. markets. Nonetheless, that does not make the stock an obvious choice for inclusion. Here’s why.
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Palantir meets the basic characteristics
A committee run by S&P Global, parent company of S&P Dow Jones Indices, decides which stocks belong in the index. According to its criteria, Palantir appears to fit all of the stated qualifications to become a Dow stock.
For one, it must be in the S&P 500 (SNPINDEX: ^GSPC), and that occurred in September 2024. Also, with it based in Aventura, Florida, it meets the qualification of having a U.S. headquarters.
Moreover, despite efforts to expand outside of the U.S., most of its revenue remains domestic. Additionally, it is not a utility or transportation company, which would only make it eligible for other Dow Jones indexes.
The Dow is a price-weighted index, meaning nominal stock prices drive a stock’s influence over it. The index will even pressure stocks to split to reduce that impact. For example, Berkshire Hathaway is not included due to the astronomical $762,000 per share nominal price of its A shares.
Palantir will not have a problem there. At a price of $182 per share as of the time of this writing, only eight of the 30 Dow stocks have a lower price.
Competitive challenges
Where Palantir may struggle is with qualitative challenges, and those looking for Palantir to join the Dow should look closely at its formidable competition.
For one, only four of the seven “Magnificent Seven” stocks are currently in the Dow. Thus, it would presumably have to stand out above Alphabet, Meta Platforms, and Tesla to be eligible for consideration.
Additionally, while the successes of Micron or Space Exploration Technologies may be too recent for Dow consideration, Broadcom might be in the running, despite its one-time foreign domicile.
Furthermore, Palantir is smaller than former Dow 30 stocks like Intel and ExxonMobil. Thus, the Dow case for Palantir’s inclusion appears weak from a competitive standpoint.
Palantir’s (relative) youth
Palantir may also struggle to achieve the level of maturity Dow officials may look for in a company.
Admittedly, Palantir has existed for 23 years, just shy of Microsoft‘s 24 years at the time of its 1999 inclusion. Nonetheless, Microsoft, which launched its IPO in 1986, had traded for 13 years at the time it joined the index.
Unlike Palantir, Microsoft had been a top company in its industry for nearly all of that time. One can say the same thing about Cisco, whose 2009 inclusion came 19 years after its IPO.
In comparison, Palantir is approaching the sixth anniversary of its IPO. This means it could make a dramatic move over the next year and even in the years to come without impressing the voting members of the committee. Amid that relative recency, the company will probably have to wait several more years before it receives serious consideration.
Do not look for Palantir to join the Dow
Given Palantir’s position in the market, inclusion in the Dow Jones Index is highly unlikely anytime soon.
Indeed, it meets all of the stated requirements for inclusion in the index. Unfortunately, it faces competition from better-established Magnificent Seven stocks and even former Dow stocks. Moreover, the company’s relative youth may mean the index will require a longer track record of success before Palantir receives serious consideration.
Admittedly, if Palantir maintains its lead among AI stocks for several more years and grows to the size of the Magnificent Seven stocks, it could eventually become a Dow 30 stock. However, for now, several other stocks are probably more suitable candidates.
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Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, Broadcom, Cisco Systems, Intel, Meta Platforms, Micron Technology, Microsoft, Palantir Technologies, S&P Global, and Tesla. The Motley Fool has a disclosure policy.
