Palantir Technologies (NASDAQ:PLTR) stock was the top performer of 2024, returning an astounding 341% in 2024. The AI stock kept charging right into 2025 as it is up about 41% year-to-date to around $106 per share.
And that included an 11% correction in the stock price this week, as investors sold off Palantir stock over the last three days.
The initial catalyst for the drop in stock price was a report on Wednesday by the Washington Post. The report said that the U.S. Department of Defense was planning to reduce defense spending by 8% over each of the next five years. That would amount to tens of billions in cuts, if they materialize, as the defense budget for 2025 is about $850 billion.
This could impact Palantir as the company generates most of its revenue from government contracts. Palantir provides software for commercial and government customers that helps them gather data and develop generative AI models to improve decision-making.
In fiscal 2024, Palantir made 63% of its U.S. revenue from the federal government and 41% of its total revenue from government contracts. So, cuts within the defense department, and across other agencies that use Palantir’s services, could potentially have a significant effect on revenue.
CEO and executives sell off stock
The other catalyst for the selloff was the release of SEC filings that showed that CEO Alexander Karp and other key executives were selling off shares of Palantir stock.
The filing showed a change that would allow Karp to sell 10 million shares of company stock this year, as CNBC reported. That would amount to more than $1 billion. He had a previous plan to sell 8 million shares, so this would authorize another 2 million or so.
Karp sold about $2 billion in shares last year, and other key executives cashed out for hundreds of millions, according to filings.
Executives cashing out like this is not unusual, especially when the stock has performed so well, at practically an unsustainable level. But when the news broke, on top of the potential budget cut news, it added to the selloff, indicating perhaps to investors that if the executives are selling, then maybe they should, too.
While current investors in Palantir probably don’t love this, the correction is long overdue as the stock’s incredible growth doesn’t seem sustainable. It is still trading at a ridiculous 569 times earnings.
Wall Street analysts have a consensus price target of $97 per share, which would be another 8% lower than the current price. That seems reasonable as given these potential headwinds, and its already high valuation, it is hard to sustain the price appreciation it has seen.
Palantir will still generate huge revenues, but at this point, it is more about the high valuation. Investors should probably be wary about jumping in right now, as another correction could occur.
