TLDR
- Palantir stock has fallen 18% from its August peak of $190 per share despite being the S&P 500’s best performer in 2025
- The drop appears driven by sector rotation, insider selling by CEO Alex Karp for tax purposes, and AI bubble concerns from OpenAI’s Sam Altman
- Commercial revenue surged 93% year-over-year to $306 million in Q2, now representing 30.5% of total revenue
- Company maintains strong fundamentals with 48% revenue growth and 46% adjusted operating margin
- Stock trades at expensive valuations of 90x forward sales and 240x forward earnings despite the recent pullback
Palantir Technologies has experienced a dramatic reversal of fortune in recent weeks. The data analytics company saw its stock price tumble from record highs despite posting impressive financial results.
The stock reached an intraday peak of $190 per share on August 12th. This represented a 151% gain from where the company started 2025, making it the S&P 500’s top performer for the year.
However, the celebration was short-lived. Within just six trading days, shares plummeted as much as 25% from peak to trough. The stock has since recovered slightly but still trades 18% below its all-time high.
The selloff appears to have multiple causes rather than one specific trigger. Investors have rotated away from high-flying AI software stocks in favor of small-cap companies. This shift came as expectations grew that the Federal Reserve would cut interest rates in September.
CEO Alex Karp’s systematic share sales to cover income taxes may have spooked some investors. Insider selling often signals to the market that executives view current prices as attractive exit points.
Comments from OpenAI CEO Sam Altman at a dinner with reporters added fuel to the fire. Altman suggested the market is experiencing an AI bubble, calling people “overexcited” about the technology’s near-term prospects.
Commercial Business Drives Growth
Despite the stock’s volatility, Palantir’s underlying business continues to perform well. The company’s second-quarter earnings showed revenue growth of 48% year-over-year while maintaining a 46% adjusted operating margin.
The standout performance came from commercial revenue. U.S. commercial sales jumped 93% year-over-year to $306 million in the second quarter. This segment now accounts for roughly 30.5% of total company revenue.
This commercial growth represents a major shift for Palantir. The company historically focused on government contracts through its Gotham platform, serving agencies like the CIA, Department of Defense, and FBI.
The introduction of Palantir’s Artificial Intelligence Platform (AIP) changed this dynamic. AIP allows businesses to use large language models to interact with the company’s software more easily. This opens doors to less technical businesses and creates more efficient use cases.
The commercial segment’s recent quarterly revenue shows consistent growth. It generated $255 million in Q1 2025, up from $214 million in Q4 2024. The trend continues back to $159 million in Q2 2024.
Government Contracts Remain Strong
Palantir’s traditional government business hasn’t been neglected during this commercial expansion. Sales to the U.S. government climbed 53% in the most recent quarter.
The company secured a major $10 billion military contract at the start of August. This deal demonstrates that government demand for Palantir’s services remains robust even as the company diversifies its customer base.
The government segment provides stability and predictable revenue streams. These contracts often span multiple years and offer protection against economic downturns that might affect commercial customers.
Palantir’s total revenue now exceeds $4 billion annually. The company demonstrates strong operating leverage as it scales up its operations across both government and commercial segments.
Few companies can match Palantir’s combination of growth rate and profitability at this scale. The business continues to expand while maintaining healthy margins.
However, the stock’s valuation remains elevated even after the recent pullback. Shares trade at approximately 90 times forward sales expectations and 240 times forward earnings.
Even with continued 50% revenue growth, it would take years for the company to grow into its current valuation. This creates downside risk if growth slows or market sentiment shifts further.
The recent $10 billion military contract signing in early August represents the most recent major business development for the company.
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