Stock market today: S&P 500 closer lower on fresh economic concerns
Investing.com -- Palantir Technologies Inc . (NASDAQ: NASDAQ:PLTR) shares fell sharply by 11%, continuing a downward trend as the market reacts to potential Pentagon budget cuts. The stock has seen a significant decline of 25% over the past four days, reflecting investor concerns over the company’s future revenue streams.
The recent sell-off in Palantir’s shares has been triggered by news that the US Defense Secretary plans to reduce projected military spending by 8% over the next five years. This development poses a threat to Palantir’s earnings, as a substantial portion of the company’s revenue is derived from US government contracts, particularly in the defense sector.
Palantir, known for its data-analysis software, has been a notable beneficiary of the artificial intelligence boom, with its stock price increasing by more than 300% in the past year. However, the company’s reliance on government spending, which accounted for over 40% of its 2024 revenue, makes it particularly sensitive to federal budget changes. This is highlighted by the fact that 22% of Palantir’s government revenue comes from the US Army.
Despite the current concerns, some analysts remain optimistic about Palantir’s prospects. Last week, Wedbush analyst Dan Ives commented on the company’s resilience, "Palantir remains one of our top names to own in 2025 and we believe this sell-off represents another opportunity with PLTR generating traction across both federal and commercial for its entire portfolio."
Investors are awaiting further details on the proposed budget cuts, with a deadline set by the Defense Secretary for input on February 24. The outcome could provide more clarity on the impact these cuts will have on Palantir and the broader defense contractor industry.
While Palantir’s stock remains volatile and currently trades at a high valuation of over 170 times estimated earnings, it continues to be one of the best-performing Nasdaq 100 Index components this year, with a 20% increase. The company’s aggressive growth forecast and its positioning in the AI sector may help mitigate some of the risks associated with government budget constraints.
Despite the potential for budget cuts, Palantir’s long-term potential remains a point of confidence for some investors, particularly regarding its role with the Pentagon. The focus on efficiency and adaptiveness in the military could lead to increased spending on tech and AI, sectors where Palantir is poised to excel.
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