Palantir Technologies (NASDAQ: PLTR) has been one of the hottest stocks in the AI space, delivering a staggering 341% return in 2024. Even as 2025 began, the stock continued its meteoric rise, gaining about 41% year-to-date. However, after touching a high of $106 per share, Palantir experienced an 11% pullback this week. Investors are now wondering: Is this a temporary setback or a sign of deeper concerns?
Defense Budget Cuts Spark Uncertainty
The first major trigger for Palantir’s recent selloff came from a Washington Post report indicating potential defense budget cuts by the U.S. Department of Defense. The report suggested an 8% reduction in defense spending annually over the next five years. With the 2025 defense budget sitting at approximately $850 billion, this would mean tens of billions in cuts.
As a company that heavily relies on government contracts, Palantir is particularly vulnerable to such changes. In fiscal 2024, the company generated 63% of its U.S. revenue from federal agencies, while government contracts made up 41% of its total revenue. Any reductions in defense spending could have a ripple effect on Palantir’s financials, making investors nervous about its long-term growth trajectory.
CEO and Executives Offload Shares
Another red flag for investors was a series of SEC filings revealing that Palantir’s CEO, Alexander Karp, along with other key executives, has been selling significant portions of their shares. Karp is now authorized to sell up to 10 million shares in 2025, amounting to more than $1 billion. This comes after he already cashed out around $2 billion worth of shares last year.
While executive stock sales are common—especially after a strong rally—large-scale selloffs often shake investor confidence. The timing of these sales, coinciding with concerns over future revenue growth, has only amplified fears that the stock’s recent gains may not be sustainable.
Is Palantir’s Valuation Justified?
Despite its impressive revenue growth, Palantir’s valuation remains a major concern. The stock is trading at an eye-watering 569 times earnings, making it one of the most expensive names in the AI sector. Even with strong revenue potential, maintaining such a high valuation requires near-perfect execution and continued rapid expansion.
Wall Street analysts have a consensus price target of $97 per share, suggesting an additional 8% downside from current levels. Given the uncertainty surrounding government contracts and insider selling activity, some investors might consider locking in profits before another correction occurs.
The Road Ahead for Palantir
Palantir remains a key player in the AI and data analytics industry, with strong government and commercial contracts. However, with potential budget cuts on the horizon and a high valuation, investors are increasingly cautious. Whether this recent pullback is a buying opportunity or the start of a longer downturn remains to be seen. One thing is clear—Palantir’s stock is at a crucial turning point, and investors will need to closely monitor the next moves from both the government and company executives.
