Palantir Technologies Inc. (NYSE: PLTR) was one of the top-performing stocks of 2024, soaring an impressive 341% on the back of its artificial intelligence (AI) expansion, strong financial performance, and inclusion in the S&P 500. However, the stock’s meteoric rise has recently been met with turbulence, driven by macroeconomic concerns, geopolitical tensions, and valuation worries.
The Rise and Fall of Palantir Stock
Following an exceptional fourth-quarter earnings report, Palantir stock surged another 65% in early 2025. However, since then, it has relinquished most of those gains despite a lack of significant company-specific news. Instead, broader economic worries, including weakening consumer confidence, potential federal budget cuts, and a deepening trade war, have rattled investor confidence in the AI-driven analytics firm.
Palantir’s Vulnerability to a Market Correction
The Nasdaq Composite has officially entered correction territory, declining over 10% from its recent highs. Historically, high-priced stocks tend to suffer the most during such downturns, and Palantir is no exception. With an ultra-high price-to-sales ratio of 69, Palantir remains significantly overvalued compared to its software industry peers. Even after the recent sell-off, a further 50% decline could still leave the stock trading at expensive levels.
Geopolitical Tensions and Trade Wars Add to Palantir’s Woes
The ongoing trade war, fueled by new tariff threats from former President Donald Trump, is escalating geopolitical tensions, particularly in Europe. Nationalistic sentiments are rising, leading European governments and corporations to favor domestic defense and analytics firms over U.S.-based options like Palantir.
This trend is already evident in Palantir’s financials. During its Q4 earnings call, the company disclosed that European revenue grew just 4%, contributing only 13% to total sales. Given the increasing uncertainty surrounding U.S. foreign policy and trade relations, Palantir’s growth prospects in international markets may remain muted for the foreseeable future.
Federal Budget Cuts Could Impact Growth
Palantir relies heavily on U.S. government contracts, which accounted for over 40% of its revenue in 2024. However, federal spending cuts loom on the horizon, posing a significant threat to the company’s revenue streams. Reports indicate that the Department of Defense (DoD), a major Palantir customer, plans to cut 8% from its budget annually over the next five years. If these reductions materialize, Palantir’s dependency on government contracts could become a major liability.
What’s Next for Palantir Stock?
As Palantir navigates an increasingly challenging macroeconomic landscape, investors are reassessing its long-term growth potential. The company’s AI-driven analytics solutions remain in high demand, but its lofty valuation, reliance on government contracts, and international headwinds present considerable risks. With the stock market in correction mode and trade wars escalating, Palantir could face further volatility in the coming months.
