Palantir Technologies, the AI-powered data software company, experienced a dramatic 25% stock decline from its peak last Tuesday, with shares trading around $90.61 by Monday afternoon. The steep sell-off represents a significant reversal for what had been one of the S&P 500’s best-performing stocks in recent months.
The catalyst for the downturn came when US Defense Secretary Pete Hegseth announced plans to slash defense spending by 8%, amounting to approximately $50 billion in cuts. This news sent shockwaves through Wall Street, as the Department of Defense represents Palantir’s largest customer, accounting for 41% of the company’s revenue in the fourth quarter alone. The heavy reliance on government contracts makes Palantir particularly vulnerable to federal budget adjustments.
Adding to investor concerns, CEO Alex Karp filed an amended stock-trading plan on the same day, allowing him to sell up to nearly 10 million shares worth over $1.2 billion through September 12. Karp currently owns approximately 2.5% of the company. By the end of Wednesday’s trading session, the stock had plummeted 10%, marking the beginning of a four-day rout that would erase billions in market value.
The decline comes despite Palantir’s strong recent performance and earnings results. The company reported impressive numbers on February 3, which had propelled the stock to record highs. However, Wall Street analysts have remained skeptical about the company’s premium valuation. Deutsche Bank analysts characterized the valuation as nearly “impossible to grow into,” while Jefferies suggested the current price could only be justified by immense growth through the remainder of the decade.
Palantir has cultivated a devoted following among retail traders, largely due to Karp’s colorful and outspoken personality. However, not all analysts are bearish on the company’s prospects. Wedbush Securities analyst Dan Ives offered a contrarian view in a Thursday note, suggesting that Washington’s spending cuts could actually benefit Palantir. He argued that the company is “well positioned for this new disciplined spending environment at the Pentagon” and that increased scrutiny of defense programs could give “Karp & Co. a bigger seat at the table in the Beltway.”
Key Quotes
Palantir is so well positioned for this new disciplined spending environment at the Pentagon and this will ultimately be a positive growth catalyst as the various programs are scrutinized and as Karp & Co. get a bigger seat at the table in the Beltway
Wedbush Securities analyst Dan Ives offered this optimistic perspective in a Thursday note, suggesting that defense spending cuts could paradoxically benefit Palantir by increasing demand for its AI-driven efficiency tools and giving the company greater influence in Washington.
impossible to grow into
Deutsche Bank analysts used this phrase to describe Palantir’s premium valuation following its latest earnings report, expressing skepticism that the company’s growth prospects could justify its current stock price despite strong recent performance.
Our Take
Palantir’s dramatic reversal exemplifies the precarious position of AI companies trading at extreme valuations in an uncertain policy environment. While the company’s AI technology is genuinely innovative and its commercial business is growing, the 41% revenue dependence on defense contracts creates significant concentration risk. The timing of Karp’s billion-dollar stock sale plan, coinciding with negative news, raises questions about insider confidence despite his long-term commitment to the company. The divergence between retail enthusiasm and Wall Street skepticism suggests a valuation disconnect that this correction is beginning to address. However, Ives’ contrarian view has merit—AI-driven efficiency tools may become more attractive, not less, in a budget-constrained environment. This situation will test whether Palantir can accelerate its commercial AI business growth to offset potential defense headwinds, a challenge that will define the company’s trajectory through 2025.
Why This Matters
This stock decline highlights the vulnerability of AI companies heavily dependent on government contracts, particularly as political priorities shift toward fiscal restraint. Palantir’s situation serves as a cautionary tale about concentration risk in the rapidly growing AI enterprise software market.
The company’s predicament illustrates broader tensions in the AI industry between sky-high valuations and fundamental business realities. Despite strong earnings and genuine AI capabilities, Palantir faces skepticism from institutional investors about whether its growth can justify its premium pricing. This reflects a maturing AI market where investors are becoming more discriminating about which companies can deliver sustainable returns.
For the defense AI sector specifically, this news signals potential headwinds as budget constraints force prioritization. However, it may also accelerate adoption of AI-driven efficiency tools like Palantir’s platform, which promise cost savings and improved decision-making. The outcome could reshape how defense contractors position their AI offerings—emphasizing cost reduction over expansion. This story matters because it demonstrates that even leading AI companies with proven technology face significant market and policy risks that can quickly impact valuations.
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Source: https://www.businessinsider.com/palantir-stock-price-ai-defense-spending-cuts-pltr-alex-karp-2025-2