TLDR
- Palantir stock (NYSE:PLTR) has dropped sharply, falling 5% on Friday and another 10% on Monday
- Investors are concerned about potential U.S. defense spending cuts under the Trump administration
- CEO Alex Karp’s plan to sell up to $1.2 billion worth of shares has further shaken investor confidence
- Despite the recent decline, PLTR shares are still up 20% in 2025
- The stock trades at approximately 160 times forward earnings, significantly higher than the Nasdaq Composite average of 27.7
Palantir Technologies (NYSE:PLTR) has experienced a dramatic reversal of fortune in recent days, with its stock price plummeting amid growing concerns over defense spending cuts and insider selling. After climbing to record highs earlier this month, the data analytics and military contractor has seen its shares tumble in what analysts are calling a necessary correction for an overvalued stock.
The selloff began last week, with Palantir shares dropping 5% on Friday before accelerating into a 10% plunge on Monday. By Tuesday morning, the downward trend continued with premarket trading showing an additional 2.5% decline to $88.36. This marks Palantir’s worst four-day performance since May 2022, with shares falling 27% from their February 18 record high of $124.62.
Investor anxiety centers primarily on the potential for reduced U.S. defense spending under the Trump administration. As a company that derives a large portion of its revenue from government contracts, particularly through the Department of Defense, Palantir stands to lose significantly if these contracts are scaled back or eliminated.
Adding fuel to investor concerns, CEO Alex Karp has announced plans to sell up to $1.2 billion worth of shares. This move by the company’s leader has sent a troubling signal to the market, raising questions about his confidence in Palantir’s near-term prospects.
Industry analysts have been quick to voice their skepticism about Palantir’s valuation, even after the recent pullback. RBC analyst Rishi Jaluria didn’t hold back in his assessment, stating that “valuation remains unsustainable” and projecting “further downside from here.” Jaluria assigned a $40 price target to PLTR, suggesting the stock could potentially fall another 56% from current levels.
Jefferies analyst Brent Thill raised additional concerns about Palantir’s ability to capitalize on artificial intelligence opportunities. Thill pointed out that the company’s total headcount grew by only 5% year-over-year, adding just 201 employees – a pace that seems inconsistent with aggressive expansion in the rapidly growing AI sector.
Thill offered three possible explanations for this modest growth: that Palantir’s AI opportunity isn’t as substantial as the market believes, that new hires are being offset by reductions elsewhere in the company, or that Palantir had previously over-hired. Like Jaluria, Thill rates PLTR shares as a Sell, with a $60 price target implying a 36% downside from current levels.
The broader Wall Street consensus on Palantir reflects this cautious outlook. Among analysts covering the stock, 5 recommend Sell, 10 suggest Hold, and only 3 advise a Buy. The average price target stands at $91.88, suggesting limited upside potential.
Despite the recent losses, it’s worth noting that Palantir shares are still up 20% so far in 2025 through Monday’s close. This impressive year-to-date performance comes after significant gains in 2024, when the stock was considered a Wall Street darling.
Valuation metrics continue to raise red flags for investors
However, valuation metrics continue to raise red flags for potential investors. Palantir currently trades at approximately 160 times forward earnings, a figure that dwarfs the Nasdaq Composite’s average of 27.7 and far exceeds that of its peers in the tech and defense sectors.
This lofty valuation suggests that despite the recent correction, Palantir shares may still be priced for perfection, leaving little room for disappointment or negative surprises. Any additional news regarding defense spending cuts or slower-than-expected growth could trigger further selling pressure.
The recent selloff is part of a broader trend affecting defense stocks following news that the Trump administration might reduce military spending. This policy shift would have wide-ranging implications for companies like Palantir that provide software and AI solutions to the Department of Defense.
Analyst coverage of Palantir shows a divided opinion, with half of the 26 analysts tracking the stock maintaining a Hold-equivalent rating according to FactSet data. While many analysts have raised their price targets as recently as this month, these adjustments have generally failed to keep pace with Palantir’s rapidly rising share price prior to the current correction.
Only about 31% of analysts covering Palantir rate it as a Buy, indicating persistent skepticism about the company’s ability to grow into its valuation. This cautious stance appears increasingly justified as the stock continues its downward trajectory.
Tuesday’s premarket trading suggests that Palantir’s losing streak may extend to a fifth consecutive day, as investors continue to reassess the company’s prospects in light of potential government spending cuts and valuation concerns.
Palantir stock (NYSE:PLTR) has fallen 27% from its record high amid fears of defense spending cuts and CEO stock sales, despite being up 20% for the year and trading at 160 times forward earnings.
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