After hitting an an intraday high of $125.41 per share last Wednesday, Palantir Technologies (PLTR) has fallen for four consecutive days, losing almost 28% of its value. In pre-market trading this morning, PLTR stock is down another 3.5%. There doesn’t appear to be anything capable of stopping this free fall plunge.
Although the artificial intelligence-driven data analytics shop has been called the best “pure play” AI stock on the market, some believe it’s possible Palantir Technologies could see its valuation cut in half from here.
Let’s find out why PLTR stock’s position seems so dire.
There were several catalysts that sparked the recent selloff. After reporting earnings that beat analyst expectations on the top and bottom lines, which sent shares soaring 24%, CEO Alex Karp announced he was implementing a Rule 10b5-1 plan to sell 10 million shares worth over $1 billion and the Defense Dept. declared it would cut military spending by 8%, or $50 billion, from its budget.
The one-two gut punches indicated Karp didn’t have faith the stock wasn’t worth its valuation and Defense cuts threatened the largest part of its business. Even if executives can sell shares for any reason, often ones that have nothing to do with the business, and there was no indication Palantir would lose any government contracts, it created a lot of doubt about its growth potential.
Considering the data analytics stock is still priced for perfection even after the PLTR stock’s haircut, the outlook for justifying those valuations look difficult to maintain.
Karp is selling a lot of stock, a seeming death knell for trust. He sold nearly $2 billion worth of stock in 2024, including a $399 million dump in November, and now wants to offload another $1.23 billion (9.9 million shares) by September. Karp looks like he is jumping ship and leaving retail investors holding the bag.
It is all about optics at an inopportune time. His sales suggest he knows PLTR’s stock can’t maintain its altitude, and by bailing his exodus could trigger others to follow en masse.
A good argument can be made that his sales have nothing to do with Palantir itself. First, Karp only owns 6.4 million shares of the company directly. He owns millions more in PLTR’s Class B stock, which hold 10 times the voting power of the Class A shares and can be converted to Class A shares at any time. He also owns more in stock options and restricted stock units (RSUs).
Karp is likely converting and selling those shares rather than his directly-held Class A stock, so he will still own a significant stake in the company he helped co-founded.
The Pentagon’s looming 8% budget cuts could be a kill shot for Palantir’s government operations, which drives 60% of revenue. Despite President Trump’s favorable view of AI, if Defense Secretary Pete Hegseth prioritizes “lethal forces” over AI data mining, Palantir’s contracts, such as with the Air Force and Space Force, could be gutted.
While the Big Data stock has expanded into the commercial enterprise market, government data mining and AI systems for U.S. intelligence and defense agencies remain its core growth driver.
Losing this revenue stream could force Palantir to have to scramble to replace the funds with commercial ones, and that’s not a given. While its U.S. business has grown smartly, and was up 64% in the fourth quarter, the company is having more difficulty overseas. Revenue there fell 7% year-over-year in the third quarter, though it rose 14% in the fourth.
If commercial deals flop, Palantir’s revenue could flatline.
Which brings us to Palantir Technologies valuation. The company needs to maintain dramatic growth rates to justify its 133 times forward earnings valuation, 74 times sales, and 186 times free cash flow.
This makes it one of the most overvalued stocks in the software-infrastructure sector, where the average price-to-sales ratio is just 5 and P/E is around 34. It is unsustainable unless Palantir delivers explosive growth, which it’s struggling to prove, especially with decelerating revenue growth. It reported 17% in 2023, 24% in 2022, and down from 47% in 2020.
Admittedly it was up 36% in 2024, but keeping that sort of momentum growing long-term is difficult. Turning in 30% to 40% growth every year is likely not achievable.
While I can readily ignore Karp’s stock sales and even say threats to its government business are overblown, it’s tough to ignore the valuation. If we assign PLTR stock a 10x sales multiple to allow for its leadership, first-mover advantage, and near-monopoly status in the space, we’re talking a market cap of $28.7 billion, not $212 billion. Even at 20x, it’s a $57 billion market valuation.
It suggests a solid argument can be made that Palantir Technologies has much more room to fall.
