Palantir Technologies (NASDAQ:PLTR) stock is officially in a bear market, which is defined as a drop of more than 20% for any length of time. The decline is unsettling for some retail investors who bought the stock during its run-up. However, with the stock filling the gap on the downside, it's fair to ask what's driving this decline and how much further it might fall.
Institutional Involvement Is a Double-Edged Sword
Two events significantly drove Palantir’s growth in the second half of 2024. First, the company was included in the S&P 500, and second, it switched its listing to the NASDAQ exchange. Both events forced the hands of institutional investors who had been on the sidelines due to the stock’s high valuation.
However, retail investors are discovering that it’s all fun in games until the big money enters the fray. With large amounts of money invested in the stock, it’s logical that much of the current sell-off in PLTR stock is coming from institutions.
On the surface, they will say that it’s because of Palantir’s high valuation. In the last 12 months, the company has increased its revenue impressively from 12% to 36% and its free cash flow margin from 6% to 55%. However, even with this recent sell-off, the company has a market cap of around $196.65 billion on trailing 12-month revenue of around $2.6 billion. Even for one of the leading technology stocks, that’s tough math.
That’s pricing in a ton of future growth. But let’s be clear. Institutions are also pouncing because they ignored and/or dismissed Palantir when they could have been buying in the $40s or the $20s. So now, the funds have some catching up to do. But they want to do that at a better price.
Efficiency Is Palantir’s Middle Name
As I wrote last week, the PLTR stock slide began, in part, on concerns that the U.S. Department of Defense (DOD) was going to “reallocate” about 8% of its budget. The bears will be quick to note that Palantir generates over 50% of its revenue from the federal government with a massive percentage of that coming from the DOD.
But this doesn’t mean the budget will get cut. As Defense Secretary Pete Hegseth remarked, some programs may get cut to shift that capital to other projects. It’s a standard operating procedure with new administration. And there’s some sentiment that Palantir will benefit from a focus on efficiency. That’s what the company’s products are designed to help its customers do.
That could be why Palantir chief executive officer Alex Karp seems nonplussed by the announcement, recently remarking to the Economic Club of New York,
“The single best thing that helps my company is meritocracy, pen test everything...maybe there’s a contract that doesn’t deserve to be renewed, great. Maybe there’s a contract that does deserve renewed that gets canceled.”
That’s very similar to remarks that Karp made on the company’s fourth-quarter earnings call in early February. At the time, Karp said about the impact of DOGE, “We love disruption, and whatever is good for America will be good for Americans—and very good for Palantir.”
That sentiment was echoed by Shyam Sankar, Palantir’s chief technology officer, who said that Palantir’s values closely align with DOGE’s mission to bring meritocracy and transparency to government.
He also said that it’s a lack of accountability in government, not efficiency that is Palantir’s real competition.
PLTR Stock Is at a Critical Point
Palantir stock is trading near its 50-day simple moving average (SMA). If it slices below that, it’s not unthinkable that it could fall to around $73, which would be near the consensus price of analysts on MarketBeat. It also would be slightly above the stock’s current 100-day SMA.
That said, on February 20, Loop Capital initiated coverage on Palantir stocks with a Buy rating and a price target of $141. PLTR stock is moving into a range that looks oversold.
For long-term investors, this sell-off isn’t enough to spark a panic, and for some on the sidelines, PLTR stock still has much lower to drop. However, the technical signals point to a higher stock price and with the company’s earnings not happening until May, the stock is likely to be volatile along with the broader market.