Palantir (PLTR) Stock Tumbles Sharply Following Pentagon Budget Reduction Plans

TLDR:

Palantir (PLTR) stock dropped approximately 18% over two days (8% Thursday, 10% Wednesday) following news about potential defense budget cuts and CEO stock sale plans

Defense Secretary Pete Hegseth has instructed Pentagon to prepare for 8% annual defense budget cuts over next 5 years

CEO Alex Karp disclosed plans to sell 10 million shares over next six months

The stock has been heavily supported by retail investors, becoming one of the most-bought securities among individual traders

Despite recent drops, PLTR is still up 35% in 2025 after gaining 340% in the previous year

Palantir Technologies (PLTR) stock experienced a sharp decline, falling approximately 18% over two days after news broke about potential defense budget cuts and the CEO’s stock sale plans. The technology and defense contractor’s shares dropped 8% on Thursday, following Wednesday’s 10% decline.

The initial catalyst for the sell-off came from a Washington Post report revealing Defense Secretary Pete Hegseth’s directive to Pentagon officials. The memo instructed senior leaders to prepare for annual defense budget cuts of 8% over the next five years, potentially affecting contractors like Palantir who rely heavily on government contracts.

Adding to investor concerns, Palantir CEO Alex Karp disclosed plans in a regulatory filing to sell 10 million shares of company stock over the next six months. The timing of this announcement contributed to the downward pressure on the stock price.

The company, which generates more than half its revenue from global government contracts, has been particularly dependent on spending from the U.S. Department of Defense. However, Hegseth’s memo indicated that 17 categories would be exempt from the cuts, including U.S. border operations and munitions acquisitions.

Despite the recent decline, Palantir’s stock performance remains notably strong in a broader context. The shares are up more than 35% in 2025, following a remarkable 340% gain in the previous year. The company emerged as the best performer within the S&P 500 last year.

Retail Investors

Retail investors have played a major role in Palantir’s market performance. According to data from Vanda Research, the stock has attracted the fourth-highest net inflows from retail investors in 2025, trailing only Nvidia, Tesla, and the SPDR S&P 500 ETF Trust.

The company has actively cultivated its retail investor base, with CEO Alex Karp regularly addressing individual investors during earnings calls and through video messages. This approach has helped build a loyal following among retail traders.

JPMorgan’s recent data confirmed this trend, showing Palantir as one of the most-bought stocks by individual traders over the past week. The stock’s popularity surged particularly in November 2024, when it rose more than 60% amid speculation about potential benefits from a Trump presidency.

Wall Street analysts, however, maintain a more cautious stance. The average analyst polled by LSEG has assigned a hold rating to the stock, with price targets suggesting potential downside from current levels.

The company’s valuation metrics have raised eyebrows among market observers. Palantir currently trades at 194 times forward earnings, substantially higher than the S&P 500’s multiple of 22. The stock’s price-to-sales ratio stands at approximately 80 times.

Wedbush analyst Dan Ives remained optimistic despite the sell-off, suggesting that Palantir’s software approach could actually help it secure more Pentagon budget dollars in a cost-conscious environment.

The Financial Times reported that Palantir is exploring partnerships with competitors, including Anduril, to form a consortium for bidding on U.S. government contracts.

The stock’s two-day decline of 18% represents its most substantial pullback since May. Thursday’s trading saw the stock price fall to $103.34, marking a $8.72 decrease.

Palantir executives have expressed confidence about their relationship with the new Department of Government Efficiency, suggesting they see potential value in the company’s offerings despite budget pressures.

Trading volume remained elevated during the two-day decline, indicating active participation from both institutional and retail investors in the price movement.