Palantir is up on Wednesday, but analysts say stock price almost 'impossible to grow into'
A longtime Wall Street darling with a rising stock price fueled by government defense contracts, Palantir Technologies Inc. (PLTR), has experienced an abrupt reversal of fortunes over the past week.
Analysts are divided in their short-term forecasts, but they generally agreed on the root causes of the recent dip.
Political changes
After spending the majority of last week in steep decline, Palantir shares continued to drop as trading resumed this week.
The stock had already lost about 15% when Friday’s closing bell rang and shed another 10.5% — its biggest single-day drop since May — on Monday. By the time Tuesday’s trading ended, shares were down an additional 3.13%.
One clear culprit is Pentagon spending cuts. The Trump administration has announced plans to trim the Defense Department’s budget by a total of 8%, which is the equivalent of about $50 billion in federal spending.
Since more than two-fifths of Palantir’s revenue comes from that agency, investors are wary of the impact such cuts could have on the company’s bottom line.
Karp’s double-edged sword
Alex Karp, the high-profile CEO seen by many analysts as a driving force behind Palantir’s S&P 500-leading 2024 performance, is also being cited as a big factor in the recent dip.
His announcement of plans to sell nearly 10 million shares of the company’s stock accelerated its decline last week.
He also courted controversy this month by applauding the efforts of Elon Musk and the Department of Government Efficiency, which have resulted in the aforementioned budget cuts.
“What the progressive left should be doing is saying, ‘OK, Elon, you’re clearly the most qualified person in the world to do something like this. We want a dialogue with you about what you’re doing, how you’re doing,’” Karp argued. “I don’t believe that’s happened.”
A victim of its own success?
Despite consistently strong earnings numbers, many analysts are starting to voice skepticism about Palantir’s ability to maintain its impressive growth rate.
After trading above expectations and adding 340% to its stock value in 2024, Palantir has continued to outperform the S&P this year — even when taking the recent dip into consideration.
But Deutsche Bank analysts determined after reading Palantir’s latest quarterly earnings report that the company’s elevated stock price appears almost “impossible to grow into.”
Jefferies Group offered a similar assessment, writing that Palantir’s expectation-beating performance would only be sustainable if its operations kept growing at a similarly impressive rate throughout the remainder of the decade.
Opportunities to adapt
If there’s a wild card that could play to Palantir’s long-term advantage, it’s AI. Equity analyst Janice Quek of CFRA believes the company’s innovative tech might put it in a position to actually profit from the Trump administration’s budget cuts.
“We highlight that the company has also been openly supportive of DOGE, and views its AI software as a competitive advantage, and aligned with DOGE’s efficiency programs,” she wrote.
Wedbush Securities analyst Dan Ives was also bullish, recently determining that “Palantir’s unique software approach will enable the company to gain MORE … budget dollars at the Pentagon … not less despite these initial knee jerk reactions from the Street.”
With industry-leading software and steady access to Pentagon contracts, Palantir has experienced an unusually robust Wall Street winning streak.
As for whether the past week represents a derailment or simply a bump in the road, analysts and ordinary investors alike will just have to wait and see.