Palantir's Stock Plummets 10% Following Concerns Over Pentagon Budget Cuts

Investors React to Potential Military Spending Reductions and CEO's Share Sale Plan / Reuters

Palantir Technologies, a major player in data analytics for both government and private sectors, witnessed a sharp decline in its stock price, dropping 10% to $112.06 per share. This downturn was primarily triggered by worries surrounding possible budget cuts announced by the US Department of Defense. The cuts, directed by Defense Secretary Pete Hegseth, are intended to identify approximately $50 billion in programs for reduction in the upcoming fiscal year, reallocating those funds to initiatives aligned with President Donald Trump's priorities.

This significant drop in Palantir’s stock extended into after-hours trading, where shares fell an additional 5.2%, marking the end of a four-day upward trend. Prior to this decline, Palantir's stock had surged by an impressive 65% year-to-date, boasting a total increase of 300% throughout 2024. Currently, Palantir's market capitalization stands at approximately $255 billion.

The recent financial report from Palantir highlighted its impressive fourth-quarter performance, with reported revenues of $827.5 million—surpassing analysts’ expectations of $775.9 million—alongside a profit of 14 cents per share. Despite these strong results, the stock's valuation has been a growing concern for investors, particularly in light of the announced budget cuts.

The pressure on Palantir's stock intensified after a regulatory filing revealed that CEO Alex Karp plans to sell nearly 10 million shares as part of a new trading strategy. Karp, who currently owns about 2.5% of the company, has a history of selling shares, which has raised eyebrows among investors, especially in the context of the current stock volatility.

Investors are increasingly apprehensive about the implications of US military budget reductions on Palantir's financial health, given that the US government constitutes its largest client. In 2024, revenue from the government surged by 30%, reaching $1.2 billion, which accounted for 42% of the company's total revenue. Analysts from Jefferies have expressed concerns about Palantir's flat international growth of 14%, especially in comparison to its robust domestic performance.

Market analysts’ sentiments towards Palantir's stock vary, with five buy ratings, 13 hold ratings, and five sell ratings noted in the Eikon database. The scrutiny over Palantir’s valuation is evident, particularly as analysts caution that any indications of slowing growth could lead to further declines in stock price. Jefferies has issued an underperform rating for Palantir, setting a price target of $60, representing a substantial discount of about 55% from the current share price. The median target price among 23 analysts is $95, indicating that while the stock may still have potential, the risks associated with budget cuts and valuation concerns are palpable.

As the market reacts to the Pentagon's budget considerations and the implications for Palantir's future, investors will be closely monitoring the company's performance and strategic decisions in the coming weeks.