Palantir Technologies’ stock has seen significant fluctuations since hitting its all-time high in February. The company’s reliance on government contracts has raised concerns that potential budget cuts at the Department of Defense could negatively impact its business. However, with its growing commercial sector and increasing backlog for U.S. commercial contracts, Palantir may diversify away from federal government contracts.
The Trump administration’s cost-cutting initiatives have shifted focus to the Department of Defense, aiming to cut 8% from the budget every year for five years. This could lead to job losses, but efficiency gains are what Palantir is selling to the federal government, which could result in new contracts if they lead to overall cost savings.
In Q4 2024, Palantir generated $1.57 billion in revenue from government contracts, with the commercial sector growing 64% year over year to $214 million. The company’s backlog for U.S. commercial contracts grew 99% year over year to $1.79 billion, indicating a promising trend.
Despite the recent sell-off, Palantir’s stock is not necessarily a buy due to its high price-to-sales ratio of 73. Even if the company grows its revenue by 30% annually for five years and expands profitability, the stock still looks overpriced with a price-to-earnings ratio of 62. Valuation matters, and investors should approach this stock with caution.
Source: https://www.fool.com/investing/2025/03/03/in-a-30-drawdown-whats-going-on-with-palantir-stoc