Palantir Technologies (PLTR) shares have plummeted after Defense Secretary Pete Hegseth ordered a 8% reduction in the Pentagon’s $850 billion budget. The White House has also announced plans to slash the Department of Defense (DoD) budget by 8% annually over the next five years.
The government is Palantir’s largest customer, accounting for nearly 42% of its revenue. However, the company’s CEO Alex Karp has adopted a new Rule 10b5-1 plan to sell his shares, which may be a response to concerns about potential funding cuts.
Palantir provides artificial intelligence (AI) solutions to various industries, including government and military sectors. While some argue that its AI can help create efficiency, reducing the budget could limit growth opportunities for the company.
In recent years, Palantir has seen inconsistent government revenue growth, with a 14% decline in 2023. However, it has also gained momentum in the commercial sector, where revenue climbed 54% in 2024.
Despite its strong commercial performance, Palantir’s valuation remains a concern. The stock trades at a forward price-to-sales multiple of 62 times 2025 analyst revenue estimates, significantly higher than the SaaS sector average.
With the DoD budget cuts looming, investors are advised to be cautious about buying or selling Palantir shares. The company’s growth prospects depend on its ability to secure funding and move customers from proof-of-concept into production.
Source: https://www.fool.com/investing/2025/02/23/palantir-sinks-on-planned-pentagon-budget-cuts-is