TLDR:
- Palantir stock has seen a 333% increase over the past year, driven by AI platform success and seven quarters of revenue growth
- Pentagon plans to cut defense budget by 8% annually over five years, affecting Palantir as government contracts represent 42% of its revenue
- U.S. commercial revenue grew 64% in Q4, making up 26% of total revenue, largely due to AI Bootcamp success
- CEO Alex Karp has adopted a new stock selling plan, allowing sale of 10 million shares through mid-September
- Stock trades at 62 times forward sales despite recent price drop, raising valuation concerns
Palantir Technologies (NASDAQ: PLTR) shares encountered new pressure today following the Defense Department’s announcement of planned budget cuts, even as the company continues to show strong growth in its commercial division.
Defense Secretary Pete Hegseth ordered the Pentagon to reduce its $850 billion budget by 8% annually over the next five years, potentially impacting Palantir, which derives 42% of its total revenue from government contracts, primarily through the Department of Defense and military branches.
The data mining and AI specialist has seen its stock surge 333% over the past year, driven by seven consecutive quarters of accelerating revenue growth and 13 straight quarters of GAAP profitability. The company’s addition to both the S&P 500 and Nasdaq 100 further bolstered investor confidence.
In the fourth quarter, while overall revenue grew 36% year over year, U.S. commercial revenue jumped 64%, now representing 26% of total revenue. This growth has been largely attributed to the success of Palantir’s Artificial Intelligence Platform (AIP) and its AI Bootcamp sessions, where customers work directly with Palantir engineers.
CEO Alex Karp’s recent adoption of a new Rule 10b5-1 plan has drawn attention from investors. The plan allows for the sale of nearly 10 million shares through mid-September, following his previous sales of 37.6 million shares that generated approximately $1.5 billion in proceeds.
The Trump administration’s defense spending cuts are targeted at “woke” programs and bureaucracy, with funds being redirected toward border security, drones, and missile defense systems. While Palantir’s existing programs may not face direct cuts, the reduced budget could limit growth opportunities within the government sector.
Palantir’s government revenue growth has shown variability in recent years, dropping to 14% in 2023 from 19% in 2022 and 47% in 2021. However, it rebounded to 30% growth in 2024, including a 45% increase in the fourth quarter, driven by increased government adoption of AI solutions.
The company’s evolution from a government data analytics vendor to an AI operating system has attracted numerous commercial customers. Many of these clients are currently in the proof-of-concept stage with AI, presenting potential for future expansion into production-level implementations.
Stock trades at 62 times forward sales despite recent price drop
Despite the recent stock price decline, Palantir continues to trade at a forward price-to-sales multiple of 62 times 2025 analyst revenue estimates. This valuation stands in contrast to historical software-as-a-service sector metrics, which peaked at around 20 times sales with similar growth rates.
The company has forecasted 31% growth at the high end of its guidance for 2025, compared to 29% total revenue growth in the previous year.
Palantir’s AI Bootcamp program continues to drive commercial sector growth, pairing customers with company engineers to develop AI use cases within five days.
The DoD budget reduction of approximately $50 billion raises questions about future government contract opportunities, even as Palantir’s AI solutions could potentially help create efficiencies within remaining budgets.
Commercial revenue growth reached 54% in 2024, demonstrating strong momentum in the private sector as businesses adopt Palantir’s AI capabilities across various industries.
The company’s focus remains on the application and workflow layers of AI rather than building AI models, distinguishing it from competitors in the market.
Government contracts provided the majority of Palantir’s revenue in 2024, making the planned defense cuts a key consideration for investors despite commercial growth.
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