Investors are becoming concerned after Palantir Technologies Inc.’s stock price dropped by 33% between February 14 and March 3. The company’s federal contracts were jeopardized due to the sell-off, which wiped almost $90 billion in market value, and reports of possible Pentagon budget cuts. Nevertheless, despite the steep fall, Palantir continues to demonstrate remarkable revenue growth, especially in its commercial business.
What Caused the Huge Sell-Off?
Following former President Donald Trump’s directive to Defense Secretary Pete Hegseth to investigate Pentagon budget cutbacks, investor confidence suffered. Palantir was alarmed by this action since government contracts remain a significant source of income. About 17% of the company’s total revenue in 2024 came from the Department of Defense. Although Palantir’s primary source of income has always been government contracts, future profits might be impacted if federal expenditure is cut.
Insider selling has increased, which has increased investor fears. CEO Alex Karp has sold almost 21% of his investment in the past six months and plans to sell an additional $45 million worth of shares this year. This has stoked rumors that insiders might not be optimistic about the company’s future.
The stock has been affected by concerns about the government, although Palantir’s commercial operation is still growing quickly. U.S. commercial revenue jumped 64% year over year in the fourth quarter of 2024, outpacing the 45% gain in government revenue. The company’s diversification plan is succeeding, with commercial revenues predicted to increase 54% to $1.08 billion in 2025.
The corporation also reported Strong quarterly results, which showed 36% year-over-year growth in revenue and profitability of $0.14 per share. Additionally, Palantir has released an optimistic view for 2025, predicting $3.75 billion in total revenue, which is higher than analysts had expected.
Palantir’s value is still up for dispute despite its rapid development. Brent Thill, an analyst at Jefferies, claims that Palantir’s multiple is over double that of its nearest software rival. Some investors are wary of this premium value since it implies that substantial future growth is already factored in.
Divergent opinions exist among analysts on Palantir’s future. Dan Ives, a Wedbush analyst, is among those who think the business can gain from government expenditure motivated by AI. Ives contends that agencies may seek to maximize spending through AI-powered solutions—an area where Palantir excels—as the government budget becomes more constrained.
However, Louie DiPalma, an analyst at William Blair, is still wary, pointing out that a possible government shutdown on March 15 may increase the likelihood of adverse outcomes. Even though he just upgraded the company to “outperform,” he cautioned that Palantir might face pressure shortly due to macroeconomic uncertainty.
Is This an Opportunity to Buy?
Palantir’s recent slide poses an intriguing conundrum for long-term investors. The company’s growing commercial business lessens dependency on federal contracts, and its AI-driven data solutions are in great demand. However, there are concerns about its high value and insider selling.
Instead of investing everything at once, investors hoping to profit from the decline could think about using a dollar-cost averaging strategy. Despite its recent volatility, Palantir’s long-term trajectory is still intriguing because of potential catalysts that might occur in the future, such as more AI usage and possible changes in government expenditure.
