TLDR
- Palantir stock dropped 33% from February 14 to March 3 following potential defense budget cuts
- The company still shows strong growth with commercial revenue increasing 64% year-over-year
- Executive stock selling, including CEO Alex Karp, has contributed to investor concerns
- Analysts have mixed views, with some seeing potential benefits from AI government spending
- Despite the drop, Palantir’s valuation remains higher than comparable software companies
Palantir Technologies has experienced a significant market correction recently, with its stock plummeting 33% between February 14 and March 3. This sharp decline followed an announcement from President Trump directing Defense Secretary Pete Hegseth to identify areas for budget cuts in the Pentagon.
The sell-off has erased over $90 billion in market value since the stock’s February 18 peak.
Investors reacted strongly to the news because Palantir derives a substantial portion of its revenue from government contracts. The Department of Defense represented approximately 17% of Palantir’s overall revenue in 2024.
However, the company has been diversifying its revenue streams over the years. While government revenue accounted for 58% of total revenue in 2021, it decreased to 55% by 2024.
The company’s commercial business has shown remarkable growth. In the fourth quarter, U.S. commercial revenue increased by 64% year-over-year, outpacing the 45% growth seen in U.S. government revenue.
Palantir’s recent quarterly results have been strong. The company reported fourth-quarter earnings of 14 cents per share, with revenues rising 36% to $827.5 million compared to the same period last year.
For 2025, Palantir forecasts revenue of $3.75 billion, exceeding analyst estimates. The company projects its commercial sales will rise 54% to $1.08 billion.
Insider selling has also contributed to investor concerns. SEC filings show that CEO Alex Karp plans to sell an additional $45 million in Palantir shares this year, having already sold approximately 21% of his stake over the past six months.
Despite the recent drop, Palantir’s valuation remains elevated compared to other software companies. Jefferies analyst Brent Thill, who maintains an “underperform” rating, notes that Palantir’s multiple is “still around two times higher than the next-highest software name.”
Some analysts remain optimistic
Some analysts remain optimistic about Palantir’s prospects. Wedbush analyst Dan Ives believes Palantir could actually benefit from government cost-cutting efforts due to its “unique software value proposition.”
Ives suggests that Palantir “is in the sweet spot to benefit from a tidal wave of federal spending on AI while other non-strategic areas of the federal IT budget get scrutinized/cut.”
The company’s artificial intelligence platform, known as AIP, helps clients consolidate disparate data into unified models that can be deployed in their operations. This capability, along with its ontology offering, provides valuable tools for both government and commercial clients.
William Blair analyst Louie DiPalma recently upgraded the stock to “outperform” but warned that a potential government shutdown on March 15 could cause “further downside pressure.”
Given the company’s strong growth prospects but elevated valuation, investors considering buying the dip might be wise to implement a dollar-cost averaging strategy rather than making a single large investment.
While short-term volatility may continue, Palantir’s expanding commercial business and potential benefits from government AI spending could provide long-term growth opportunities.
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