Palantir Stock Tumbles Amid Pentagon Budget Cuts and CEO Stock Sale Plan

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On Thu, 20 Feb, 8:02 AM UTC

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Palantir Technologies faces challenges as its stock price drops due to potential Pentagon budget cuts and CEO Alex Karp's new stock selling plan, raising questions about the company's future growth and valuation.

Palantir Stock Plummets on Pentagon Budget Cut News

Palantir Technologies (PLTR) stock has experienced a significant downturn, falling by 27% from its peak of around $125 per share in early February 2025. This decline comes in the wake of two major developments: potential Pentagon budget cuts and CEO Alex Karp's new stock selling plan 12.

Pentagon Budget Cuts Raise Concerns

Defense Secretary Pete Hegseth has ordered Pentagon officials to propose ways to reduce the defense budget by 8% annually over the next five years. This directive has raised concerns about Palantir's future revenue streams, as the U.S. government accounted for approximately 42% of the company's total revenue in 2024, with a significant portion coming from the Department of Defense and military branches 23.

The proposed budget cuts, which could amount to about $50 billion from the current $850 billion budget, are reportedly targeting "woke" programs focused on climate change and bureaucracy. Funds are expected to be redirected towards border security, drones, and missile defense systems 2.

CEO Alex Karp's New Stock Selling Plan

Adding to investor concerns, CEO Alex Karp has initiated a new Rule 10b5-1 trading plan. This plan allows for the sale of approximately 10 million shares through September 12, 2025, potentially worth $1.23 billion based on recent stock prices 14.

Karp's previous plan, which he canceled, had allowed him to sell 37.6 million shares for nearly $1.5 billion. While such trading plans are designed to protect executives from accusations of illegal insider trading, the timing and scale of potential sales have raised questions among investors 14.

Impact on Palantir's Business and Stock Performance

The combination of potential government spending cuts and insider selling has led to increased volatility in Palantir's stock price. However, some analysts, like Dan Ives at Wedbush Securities, view the focus on efficiency as a potential positive for Palantir, arguing that it could lead to "more IT budget dollars at the Pentagon, not less" 1.

Palantir has been experiencing strong growth, particularly in its commercial sector, which saw revenue climb 54% in 2024. The company's evolution from a data analytics vendor to an AI operating system has attracted numerous commercial customers, although many are still in the proof-of-concept phase for AI implementation 25.

Valuation Concerns and Future Outlook

Despite the recent drop, Palantir's valuation remains a point of contention. The stock is trading at a forward price-to-sales (P/S) multiple of 62 times 2025 analyst revenue estimates, significantly higher than the typical peak P/S ratio of around 20 times in the software-as-a-service (SaaS) sector 35.

While Palantir has forecasted revenue growth of 31% for 2025, sustaining growth from its primary government customer is critical to justifying the stock's current valuation. The company's ability to convert proof-of-concept customers into production-level clients will be crucial for its future success 35.

As Palantir navigates these challenges, investors are closely watching how the company will maintain its growth trajectory and justify its valuation in the face of potential government spending cuts and increased market scrutiny.

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