Palantir Technologies Inc. (NYSE: PLTR) has been in the news for several reasons. The latest is the drop in share price over the past few weeks. After hitting a high of $125 in early February, the stock is down to $89, a drop of over 30%. Investors are wondering whether to buy more or sell the stock. The drop in stock value was seen after Pentagon’s announcement to cut military spending over the coming years. It plans to reduce the annual spending by 8% over the next five years which could amount to $50 billion.
Palantir is known to have catered to government clients for several years and about 40% of its revenue is made up of government contracts. A decline in the defense budget will lead to a drop in Palantir’s government revenue and investors are concerned about the future of the company. The big question here is- to buy or steer clear of this stock?
Key points in this article:
- Palantir stock was on a rally in 2024 and it started 2025 with a bang.
- Despite reporting strong fundamentals, the stock has dropped due to a cut in defense spending.
- I believe Palantir is a long-term AI stock to hold.
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The bigger picture is attractive
While it can be difficult to predict how the stock will move from here, investors need to look at the bigger picture and not panic when the stock dips. Yes, Palantir may be impacted by a drop in defense revenue but it is interesting to note that the company is highly diversified and has been growing its commercial client base.
Despite the drop, the stock is still up 264% in the year and 18% year-to-date. The stock had a remarkable rally in 2024 and this drop might be a cause of concern.
Despite being in the industry for two decades, Palantir reported its first profit in 2023 driven by AI. Earlier this month, analysts suggested that Palantir could benefit from the Trump administration and its focus on AI. As someone who has always been bullish on Palantir, I think this is a temporary dip and is a reaction to the Pentagon announcement. There are several reasons I’d still bet on Palantir stock.
Palantir has nailed it with AI and its Artificial Intelligence Platform (AIP) is attracting consumers from different industries. The company organized boot camps where potential clients could see how the platform can help handle big data and once they were convinced, they’d convert into paying clients. This has helped the company achieve high commercial revenue over the past year.
Strong fundamentals
Investors need to keep in mind that Palantir’s government contracts are not solely focused on the defense sector. It has a highly diversified portfolio and has also signed a partnership with Voyager Space in 2024 to enter the space industry. Palantir has what it takes to succeed in the highly competitive AI sector and its diversified portfolio will help the company remain stable even in times of market volatility.
In the recently announced fourth-quarter earnings, the company reported U.S. revenue of $558 million, up 52% year-over-year and the total revenue hit $828 million, up 36% year-over-year. Interestingly, the revenue from U.S. government clients was $343 million, up 45% year-over-year and the U.S. commercial client revenue was $214 million, up 64% year-over-year. This shows that commercial revenue is growing at a higher rate than government revenue. Additionally, its U.S. commercial remaining deal value stood at $1.79 billion, which is up 99% year-over-year.
Wall Street is bullish on the stock
Insiders are selling Palantir shares but Wall Street is optimistic about the company. Morgan Stanley has an overweight rating for the stock with a price target of $115 while Wedbush analysts called the company one of the “top names to own in 2025”. Loop Capital analysts are also bullish on the stock and have a price target of $141.
The company has seen revenue grow at an impressive rate in the past few years. Since the IPO in 2020, Palantir has come a long way and a reduction in defense budget may not have any long-term impact on the stock. I believe the stock is a buy in every dip.
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