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  • Writer's pictureAmit Kukreja

BREAKING: Palantir Now Eligible for S&P500 Index Fund

In a letter to shareholders, Alex Karp, CEO and Founder of Palantir Technologies, announced that the S&P 500 Index Fund and its committee had decided that companies like Palantir, with a Founder-led share structure, could be eligible for the index. This means that companies with a majority F-class share structure, giving Founders full control of the company and 51% majority allocation, can now be included in the S&P 500. This shift is a significant one, not only for Palantir but also for other technology firms in the US that can now retain their independence and thus retain their advantage.

The index, calculated by adding each company's float-adjusted market capitalization, is made up of the largest 500 companies in either the NYSE, NASDAQ, or SBOE. To be included, companies need to have a market cap of at least $12.7 billion, the majority of their shares in public hands, have been a public company for at least one year, and, most importantly, have shown Gap profitability over the last four quarters, including the current one.

The S&P 500 index fund has a long and interesting history that dates back to the early 20th century. The Standard & Poor's (S&P) index was first created in 1923 as a way to measure the performance of the overall stock market. The index initially included only 233 companies, but it quickly grew to include 500 of the largest publicly traded companies in the United States.

In 1957, the first index fund was created by the investment management firm Wellington Management. This fund was designed to track the S&P 500 index and provided investors with a way to invest in the overall stock market without having to buy shares of individual companies.

Over time, other investment firms began to offer index funds as well, and they became increasingly popular among investors due to their low fees and passive management style. The S&P 500 index fund, in particular, became one of the most popular index funds due to its long history and the fact that it tracks the performance of some of the largest and most well-known companies in the United States.

In 1976, the first exchange-traded fund (ETF) was created, which allowed investors to buy and sell shares of the S&P 500 index fund throughout the day, just like individual stocks. This made it even easier for investors to gain exposure to the overall stock market through the S&P 500 index fund. Today, the S&P 500 index fund is one of the most widely held investments in the world, with trillions of dollars invested in various index funds that track its performance. The fund has become a staple of many retirement portfolios and is often used as a benchmark to measure the performance of other mutual funds and investment portfolios.

The announcement has made Palantir's prospects more appealing to investors, with thousands of institutional hedge fund managers, capital allocators, large institutions, and investors needing to have exposure to the company. The S&P 500 index fund has over $11.2 trillion in assets benchmarked to it, with $4.6 trillion of those in total index funds. Palantir has not been exposed to the vast majority of institutional investors worldwide for a variety of reasons, such as not being profitable and a lack of global name recognition.

The eligibility for inclusion in the S&P 500 would give Palantir the global recognition required for investors to take notice, thus increasing their market appeal. Karp recognizes how important this is, even though he hates Wall Street, as it aligns with Palantir's philosophy of Founder-led companies. With the Founder's vision and control over the business, investors can trust that the company's mission is executed with their interests aligned.

Being included in the S&P 500 is not only a matter of prestige but also has practical implications for companies. For instance, when a company is included in the S&P 500, it can attract the attention of a broader set of investors, including mutual funds and pension funds. These investors typically track the S&P 500 and will buy shares in companies included in the index, thereby increasing demand for the stock and potentially driving up the share price.

Furthermore, inclusion in the S&P 500 can lead to increased visibility and credibility for the company, as it is seen as a stamp of approval from the financial community. This can be particularly beneficial for new and emerging companies that are looking to establish themselves in their respective industries.

Another advantage of being included in the S&P 500 is that it can provide companies with greater access to capital. Companies that are part of the index are typically seen as being more financially stable and reliable, making it easier for them to secure funding from banks and other financial institutions.

In addition, inclusion in the S&P 500 can lead to greater liquidity for a company's stock. With a larger pool of investors following the stock, there is typically greater trading volume, which can make it easier for investors to buy and sell shares in the company. This can be particularly beneficial for large institutional investors that need to move in and out of positions quickly. Being included in the S&P 500 can also provide companies with valuable benchmarking data. The index is widely used as a benchmark for the broader stock market, and companies included in the index can use this data to track their own performance against the market as a whole. This can be particularly useful for management teams that are looking to make strategic decisions about the direction of the company.

Palantir's eligibility for inclusion in the S&P 500 index fund is a significant boost to its investment prospects, making it more appealing to investors who want to be part of the 500 largest companies in the US. With profitability being the only remaining obstacle, investors will be keeping a close eye on the company's upcoming Q1 earnings report, due on May 8th, to see if they can maintain their Gap profitability and be included in the S&P 500.

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