Palantir Technologies Inc. (NYSE: PLTR) has seen its stock price tumble 26% from its record high on February 18, despite being a market darling for the past year. The recent decline comes after an impressive 266.9% surge over the last year, significantly outperforming NVIDIA Corporation (NVDA), which gained 33.8% during the same period. Notably, Palantir was the top-performing S&P 500 stock in 2024, making its recent pullback a focal point for investors.
Why Is Palantir’s Stock Price Dropping?
Despite its exceptional performance, Palantir’s recent downturn can be attributed to several factors:
- Defense Budget Cuts: Last month, President Trump signed executive orders aimed at reducing the U.S. defense budget by 8% annually for the next five years. This directly impacted Palantir, as 42% of its 2024 revenue came from U.S. government contracts.
- Slower Revenue Growth: Although Palantir is riding the AI wave, its revenue growth rate slowed from 47% in 2020 to 29% last year, indicating that generative AI hasn’t yet translated into exponential financial gains.
Why Palantir Stock Remains a Strong Buy
Despite the recent weakness, Palantir’s underlying fundamentals and growth prospects remain compelling:
- Surging Q4 Revenues: In the fourth quarter of 2024, Palantir’s revenues jumped 36% year over year, driven by expanding customer adoption.
- Private Sector Expansion: Palantir is successfully moving beyond government contracts by gaining traction in the private sector, which is expected to boost revenue diversification and reduce reliance on public sector clients.
- Customer Base Growth: The company’s customer count increased by 43% year over year, signaling strong demand for its data analytics and Artificial Intelligence Platform (AIP) solutions.
Palantir’s AI Platform Driving Long-Term Growth
Palantir’s AIP platform is gaining popularity as it offers automation capabilities that exceed human capacity. This has led to increased demand from both existing and new customers.
- Lower Customer Acquisition Costs: With existing customers driving business growth, Palantir’s customer acquisition costs are declining, boosting its profit margins and supporting market capitalization expansion.
- Revenue Projections: For 2025, Palantir expects its revenue to grow by 31%, surpassing Wall Street estimates and signaling strong future growth potential.
Key Takeaway for Investors
While Palantir stock is down 26% from its peak, its solid fundamentals, AI-driven expansion, and rising private sector penetration make it an attractive long-term play.
