Palantir Stocks Plummet Amid US Military Budget Cuts: Analysts Divided on Future Impact

Palantir Technologies Inc. shares experienced a significant downturn last week, with a four-day drop marking the largest decline since 2022. This downturn follows news that Defense Secretary Pete Hegseth plans to reduce projected US military spending by 8% over the next five years, potentially impacting Palantir’s revenue, which is heavily reliant on the US government. Despite the stock’s recent volatility, Palantir remains one of the best-performing components of the Nasdaq 100 Index this year, up about 28%.

Palantir’s stock fell 4.6% on Monday, contributing to a more than 20% drop over the four-day period. The data-analysis software company has seen substantial growth, rising over 300% in the past year and adding nearly $190 billion in market value. However, the company’s significant exposure to US government revenue, particularly from the US Army, has raised concerns amid plans for budget cuts.

Analysts are divided on the impact of these cuts. Some, like Tim Pagliara of Capwealth Advisors, believe the stock’s valuation remains high and that there is considerable execution risk and uncertainty. Others, such as Jack Ablin of Cresset Wealth Advisors, argue that Palantir’s unique software approach will enable it to gain more IT budget dollars at the Pentagon, and that the cuts could be a positive growth catalyst.

Palantir’s stock is currently trading at more than 170 times estimated earnings, making it the most expensive component of the S&P 500 Information Technology Sector. Despite this, more than half of the analysts tracked by Bloomberg have hold ratings on the shares, with six recommending a buy and five suggesting to sell. The stock is roughly 4% above the average 12-month price target, indicating a relatively low projected return among tech companies.

Despite the elevated valuation and concerns over budget cuts, some analysts remain confident in Palantir’s long-term potential, particularly with the Pentagon. Capwealth Advisors’ Pagliara believes that a military focused on efficiency and adaptiveness will spend more on tech and AI, potentially allowing Palantir to buck any budget-cut trends.