Palantir Stock Faces Sharp Decline After Recent Highs

Palantir Technologies (NASDAQ: PLTR) reached an all-time high share price of $124.62 on February 18. However, by Thursday’s close, just four weeks later, it had plummeted nearly 30% in value. At one point, the stock was down by nearly 40%.

What has changed for Palantir? This company was once a top choice among defense stock investors. Now, it seems to have taken a turn for the worse. What happened?

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There are at least three significant reasons for Palantir’s dramatic decline.

Recent Nasdaq Sell-off Impacting Tech Stocks

The Nasdaq Composite (NASDAQINDEX: ^IXIC) has recently dropped 13.7% within about three weeks, creating losses for investors in technology stocks that had previously surged in popularity.

Palantir, which benefitted from investments in a select number of tech stocks, saw its value triple over the past year before facing this setback. As the saying goes, “The bigger they are, the harder they fall.” Investors regarded Palantir’s stock as expensive as the current downturn approached. They were also sitting on significant paper profits, prompting many to sell and secure their gains.

Concerns Over Trump Tariffs

Adding to investor anxiety is the inconsistent messaging regarding tariffs from the new presidential administration. “The market hates uncertainty,” and in this case, both investors and CEOs are unclear on how tariffs will be implemented and their potential impact.

While Palantir may not be as affected by tariffs compared to companies that import heavily, the threat of retaliatory tariffs from other nations could hinder its operations. Notably, over one-third of Palantir’s revenue comes from international sales, according to S&P Global Market Intelligence.

Image source: Getty Images.

Budget Cuts Impacting Government Revenue

Regarding revenue sources, roughly two-thirds of Palantir’s income is generated within the United States, primarily from government clients like the Department of Defense. Currently, budget cuts initiated by Elon Musk’s administration pose risks to Palantir’s revenue.

Despite these challenges, analysts surveyed by S&P Global maintain a positive outlook, forecasting a 32% revenue growth for Palantir this year, up from 29% in 2024. Palantir’s emphasis on artificial intelligence as a means to cut costs in military operations may ultimately benefit the company.

However, the ongoing uncertainty regarding government spending raises concerns among investors. Consequently, this apprehension significantly contributes to Palantir’s recent stock decline.

Image source: Getty Images.

Concerns About Valuation Viability

To summarize, I have my own apprehensions about the continued decline of Palantir’s stock.

While Palantir’s stock skyrocketed by over 267% in the past year, the recent 30% dip reflects a struggle to maintain this momentum. Despite the significant drop, Palantir remains considerably high at a price-to-earnings ratio of 460, about 220 times free cash flow and almost 70 times sales. In comparison, industry giants like Alphabet (NASDAQ: GOOG), Amazon.com (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Oracle (NYSE: ORCL)—all of which are part of the Pentagon’s Joint Warfighting Cloud Capability (JWCC) contract—display far lower valuations. For instance, Microsoft trades at just 11 times sales, and Amazon stock stands at only 3.3 times sales.

The average P/E ratio among these companies is 31, which is less than a tenth of Palantir’s valuation.

Even with projected sales growth of 32% annually, Palantir’s stock valuation appears excessive by comparative standards. Because of this, I believe it is highly likely that Palantir’s stock, which has already decreased by 30% in four weeks, may fall further.

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Suzanne Frey, an executive at Alphabet, sits on The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is also on the board. Rich Smith has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Amazon, Microsoft, Oracle, Palantir Technologies, and S&P Global. The Motley Fool advises on the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.