For its first few years as a public company, Palantir Technologies (PLTR -1.42%) struggled mightily to capture meaningful market share in the enterprise software space. The company's sluggish growth and heavy reliance on lumpy federal contracts fueled a perception that Palantir was really more of a government consulting operation and less so a legitimate player in the software arena.

On April 7, 2023, Palantir's CEO, Alex Karp, wrote an investor letter that significantly altered the perception of the company.

In this announcement, Karp disclosed that Palantir is on the verge of releasing its fourth major suite: the Artificial Intelligence Platform (AIP). Following this news, Palantir's stock has surged by 733% as of January 10.

Palantir's soaring stock price is no accident; it coincides with a period where artificial intelligence is at the forefront of investment trends. However, Palantir's success isn't solely attributed to the favorable buzz around AI. The firm has demonstrated its ability to stand toe-to-toe with the biggest names in the tech industry, highlighting the transformative impact that AIP has had on its operations.

Considering the sharp rise in its share price in less than two years, Palantir could make an interesting candidate for a stock split. Below, I'll explore reasons why Palantir may or may not split its stock soon.

Reasons Palantir May Contemplate a Stock Split Palantir Technologies could explore the option of a stock split for several strategic reasons. Firstly, a stock split can make shares more affordable for retail investors, potentially increasing liquidity and attracting a broader base of shareholders. By lowering the per-share price, it may create a perception of accessibility and encourage more trading activity. Additionally, a stock split could enhance the company's marketability. A lower price point might appeal to investment funds and smaller investors who may have previously found the stock too expensive. This increased interest could drive up demand and, in turn, boost the stock's overall valuation. Moreover, a stock split can signal confidence in the company's future growth prospects. By taking this step, Palantir could communicate to the market that it anticipates continued success and stability, which might positively influence investor sentiment. Lastly, a stock split could help align Palantir’s share price with that of its competitors in the tech industry, making it more comparable and potentially more attractive to investors. Overall, while a stock split does not change the company's fundamentals, it can positively impact perception, accessibility, and market dynamics.

In recent years, megacap technology stocks, including Tesla, Nvidia, Apple, Amazon, Alphabet, and Broadcom, have all completed stock splits. As I illustrated in a recent article, each of these stocks experienced outsized and prolonged run-ups in their respective share prices prior to completing a split.

Palantir is no different. In 2024, Palantir stock gained 340% and was the top performer in the S&P 500.

According to the chart presented, Palantir's stock experienced significant momentum in the final months of 2024. Consequently, the company's valuation has escalated, and its rising share price could potentially place it beyond the financial reach of smaller retail investors.

It's essential to understand that stock splits do not alter a company's fundamental valuation. Nevertheless, after a split occurs, the adjusted price can be viewed as more affordable by investors. This perception often leads to increased buying activity, as more investors are inclined to purchase shares at what seems like a lower price, resulting in heightened demand and subsequently driving up the share price.

Furthermore, since stock splits increase the number of outstanding shares for a company, more shares become available to trade on the market.

In summary, by enhancing the accessibility of its investment opportunities to a wider range of investors, Palantir is likely to see an increase in trading liquidity after a stock split.

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Reasons why Palantir is unlikely to pursue a stock split in the near future.

Back in November, Palantir changed its trading exchange from the New York Stock Exchange (NYSE) to the Nasdaq (NASDAQINDEX: ^IXIC).

It is probable that the decision stemmed from the company's image among investors. As mentioned earlier, certain analysts on Wall Street continue to express doubts about Palantir's potential for success. Nevertheless, by listing its shares on Nasdaq, which is primarily a tech-oriented index, Palantir aims to align itself more closely with high-growth companies in the technology industry.

Moreover, within a short span of time, Palantir was added to the Nasdaq-100 index -- which definitely helped the company land on the radars of more investors, specifically institutional investors. And now that Palantir has proven that it can generate consistent revenue and profit acceleration, it should be no surprise that it's one of the high-growth opportunities in the tech sector. But this means management won't be necessarily inclined to undertake a stock split primarily to increase trading liquidity.

Ultimately, stock splits can be labor-intensive and costly endeavors from the standpoint of company leadership. The approval of stock splits requires the consent of a company's board of directors, and typically, organizations will invest significant time collaborating with investment banking and accounting firms to conduct complex modeling analyses. These analyses aim to assess the various potential impacts a split could have on the company's operations.

Despite its success since the dawn of AIP in April 2023, Palantir is still very much in growth mode. To me, management should be more focused on scaling the business and acquiring market share rather than spending time looking at theoretical financial analyses following a split.

To put it differently, I find the idea of a stock split to be an interesting notion, yet it seems more like a diversion and a personal initiative for Palantir rather than a significant strategy.