Shares of Palantir Technologies (PLTR) dropped significantly following Defense Secretary Pete Hegseth’s directive for the Pentagon to cut its $850 billion budget by 8%, or approximately $50 billion. Additionally, the White House aims to reduce the Department of Defense (DoD) budget by 8% annually over the next five years. In 2024, the government was Palantir’s largest customer, accounting for nearly 42% of its total revenue, primarily from the DoD and military branches. Palantir CEO Alex Karp has implemented a new Rule 10b5-1 plan, allowing executives to sell company shares based on predetermined parameters. Under his previous plan, Karp sold 37.6 million shares, generating nearly $1.5 billion. His new plan permits the sale of nearly 10 million shares through mid-September. The Trump administration seeks to redirect DoD spending cuts towards border security, drones, and missile defense systems, while reducing funds for climate change initiatives and bureaucracy. Although Palantir’s programs may not face direct cuts, the reduced budget could limit growth opportunities. Conversely, Palantir’s AI solutions might enhance efficiency, potentially increasing funding for its software platform. Historically, Palantir’s government revenue growth has been volatile, ranging from 14% in 2023 to 47% in 2021, with a rebound to 30% in 2024. The company has also gained traction in the U.S. commercial sector, with revenue surging 54% in 2024. Despite its success, Palantir’s stock remains highly valued, trading at a forward price-to-sales (P/S) ratio of 62 times 2025 analyst revenue estimates. Given the uncertainty surrounding DoD budget cuts and their potential impact on Palantir, investors may consider moving to the sidelines. — news from The Motley Fool
