Shares of Palantir Technologies (PLTR) stock plummeted 9.38% on Friday, dropping from $144 per share to under $131 per share. As there was no company-specific news to drive the decline, should investors be worried the market is recalibrating the growth potential of the artificial intelligence-powered data analytics firm?
Actually, this should be seen as a buying opportunity, because there is more downward pressure to come.
Although there was no news, PLTR's fall was likely driven primarily by the annual FTSE Russell reconstitution of its U.S. indexes. Palantir’s meteoric 460% rally over the past year propelled its market cap to $311 billion, triggering its shift from the Russell 2000 (small-cap) to the Russell 1000 (large-cap) index, which became effective after the market closed on June 27.
This annual rebalancing forced small-cap index funds to sell PLTR shares, as it no longer qualified for the Russell 2000, creating significant selling pressure. Jefferies analyst Steven DeSanctis noted Palantir faced the most selling by dollar value from passive managers during the reconstitution, with an estimated $150 billion in net trades amplifying volatility.
Adding to the pressure, S&P Global’s index reshuffle will take place today, likely causing another sell-off. Added to the S&P 500 last September, the reshuffle of S&P indexes, including the S&P MidCap 400, may prompt additional fund rebalancing, exacerbating PLTR’s decline.
Today, when markets open with newly reconstituted indexes, PLTR could face further volatility from passive funds adjusting to S&P and Russell changes, though shares are up 4.8% in premarket trading.
Despite the tumble, Palantir’s fundamentals remain strong, with first-quarter revenue up 39% to $883.9 million and it raised its full-year outlook. The Russell 1000 inclusion boosts visibility and institutional buying, potentially stabilizing the stock.
For investors, this dip could be a chance to buy PLTR at a discount, capitalizing on its AI-driven growth and long-term potential, provided they tolerate short-term volatility. If there is additional selling pressure on PLTR after S&P gets done making its move, investors who have looked for a cheaper entry point should jump in with both feet.
