As Dell Technologies and Palantir Technologies prepare to join the prestigious S&P 500 index, investors and market analysts are keeping a close eye on the two companies. Both are expected to benefit significantly from the increased visibility, liquidity, and demand for their shares as index-tracking funds adjust their portfolios to include these tech giants. With shares of both companies seeing substantial after-hours gains following the announcement, it’s clear that the market is anticipating further upside as the companies begin their S&P 500 journey on September 23, 2024.

Why the S&P 500 Inclusion Matters

The S&P 500 is one of the most influential stock indices globally, serving as a benchmark for large-cap U.S. equities. Inclusion in this index often leads to a surge in demand for a company’s shares, primarily because index funds and ETFs that track the S&P 500 must purchase shares of the newly added companies. For Dell and Palantir, this marks a significant milestone, positioning them among the elite companies in the U.S. economy.

Valérie Noël, Head of Trading at Syz Group, noted the immediate market reaction to the announcement: “Palantir shares surged 7.52% in after-hours trading, while Dell shares jumped 5%. This is a clear signal of the market’s confidence in the growth prospects of these two companies as they prepare to join the S&P 500.” Both companies have been growing their influence in the tech space, and this inclusion is expected to further solidify their market positions.

Palantir: Riding the AI Wave

Palantir, co-founded by tech billionaire Peter Thiel, has been riding the wave of artificial intelligence (AI) growth. The company, known for its big data analytics platforms like Palantir Gotham and Palantir Foundry, has been gaining momentum as governments, law enforcement, and financial institutions increasingly rely on AI and machine learning for data-driven decision-making.

Palantir’s shift towards AI and its commercial applications has bolstered its financial performance, with the company achieving consistent revenue growth and profitability since 2022. According to Bodhi Blake, a development specialist at Google, “Palantir has long been considered a key player in the AI space, and its inclusion in the S&P 500 further underscores its importance in the tech sector.”

Palantir’s expanding commercial business, particularly its AI tools, has driven its stock to new highs in 2024. As Dr. Koay, an AI advisor, noted, “Palantir’s consistent revenue growth and profitability are encouraging, but shareholders should keep an eye on the long-term risks, especially its focus on government contracts, which could face competitive challenges.”

Dell’s AI Strategy Pays Off

Dell Technologies, long known for its dominance in the hardware space, has shifted its focus toward AI infrastructure. The company has been capitalizing on the increasing demand for servers and storage solutions capable of handling AI workloads. This strategic pivot has led to stronger-than-expected revenue growth, with Dell benefiting from its AI server sales.

Dell’s AI-centric strategy has proven to be a lucrative move, with the company reporting better-than-expected earnings in recent quarters. The company’s inclusion in the S&P 500 reflects its growing importance in the tech sector, particularly in providing the hardware necessary to power AI advancements. “Dell’s re-entry into the S&P 500 after a strong performance in AI server sales highlights its growing relevance in the tech space,” said Dr. Koay.

However, as with Palantir, Dell’s success in the AI space also comes with risks. As demand for AI infrastructure fluctuates, Dell may face volatility in its revenue streams, making long-term growth a key focus for investors.

The Ripple Effect on American Airlines, Etsy, and Bio-Rad

While Dell and Palantir celebrate their inclusion in the S&P 500, the companies they are replacing—American Airlines, Etsy, and Bio-Rad Laboratories—are facing the opposite effect. Removal from the index typically leads to a decline in stock prices as index funds sell off shares to align with the new composition.

American Airlines, in particular, has been struggling with rising labor costs and delayed deliveries of new planes, which have hurt its profitability. Following the announcement, American Airlines shares dropped 0.8%, adding to a 21% year-to-date decline. Etsy, which will move to the S&P SmallCap 600, also saw a slight decline in its stock price.