A high valuation and prevailing uncertainty are impacting the stock’s performance.
For a period, Palantir Technologies (PLTR) appeared invulnerable, with its stock price increasing by as much as 1,250% over the past two years. However, investor sentiment has recently shifted negatively. On Monday, the stock fell by as much as 11.9%, and by 1:38 p.m. ET, it was still down by 8.1%.
Overall, the artificial intelligence (AI) software and data mining company has experienced a decline of approximately 25% over the past five days, following a recent all-time high early last week. This significant drop raises the question of whether it is an opportune moment to purchase the stock.
Several factors are exerting pressure on Palantir’s stock. The company announced through a regulatory filing that CEO Alex Karp plans to sell 9,975,000 shares using a 10b5-1 trading plan, with the liquidation set to be completed by September. Prior to the downturn, this sale could have amounted to as much as $1.24 billion. Considering that a significant portion of Karp’s compensation is stock-based, this planned sale is neither unexpected nor particularly concerning.
A more crucial issue is the report that Defense Secretary Pete Hegseth intends to cut defense spending by 8% annually over the next five years. If these plans proceed, there are investor concerns that this could pose a threat to one of Palantir’s growth drivers, given its role as a major supplier of data mining and AI systems to U.S. intelligence and defense agencies.
There is no unified opinion on Wall Street regarding Palantir. Among the analysts covering the company, four rate it as a buy or strong buy, 14 consider it a hold, and five label it as underperform or sell.
The potential for Palantir in the AI sector is undeniable. Despite its sharp decline, the stock is priced at 167 times the next year’s expected earnings. The stock’s considerable overvaluation suggests that volatility will persist, prompting investors to approach cautiously. For those interested in purchasing, Palantir could be suited for a dollar-cost averaging strategy.
Danny Vena has positions in Palantir Technologies. The Motley Fool also has positions in and recommends Palantir Technologies, adhering to their disclosure policy.