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Palantir (PLTR) shares continued their downward spiral on Thursday, Feb. 20, dropping more than 5% and stoking concerns that one of retail traders’ most beloved tech picks may be losing steam.
The decline adds to Wednesday’s 10% plunge — the stock’s worst single-day performance since May 2024 — after shares briefly touched an all-time high earlier in the session. The selloff was initially triggered by news of CEO Alex Karp’s stock sale plan and reports of potential defense budget cuts.
“The activity in Palantir is dominated by retail investors,” Gil Luria, head of technology research at D.A. Davidson, told CNBC. “The company embraces that and caters to those investors as much or more than any other company.” Data from Vanda Research shows Palantir has attracted the fourth-highest net inflows from retail investors in 2025 through early February, trailing only Nvidia (NVDA), Tesla (TSLA), and the SPDR S&P 500 ETF Trust (SPY).
Palantir’s astronomical valuation has raised eyebrows on Wall Street. Its forward price-earnings ratio of 361x far exceeds the S&P 500 Index’s ($SPX) multiple of 22x. However, analysts believe that strong retail investor loyalty helps justify these premiums.
The latest downturn was sparked by Defense Secretary Pete Hegseth’s reported directive to Pentagon officials to prepare for 8% annual defense budget cuts over the next five years. Additionally, a regulatory filing revealed Karp’s plans to sell 10 million shares over the next six months. It is important to note that Karp would be conducting this sale through a prearranged 10b5-1 trading plan. Executives typically use these to sell on set trading schedules, netting proceeds to pay for various personal financial goals. These facts did not stop investors from reacting negatively to news of Karp’s planned sale.
Despite this week’s 10% decline, Palantir shares are still up more than 30% year-to-date, following a staggering 340% gain in 2024. The tech stock’s surge has been partly fueled by investor excitement around artificial intelligence and speculation about potential benefits from President Donald Trump’s return to office.
However, some experts warn that retail investors may be overlooking fundamental valuation concerns. The disconnect between retail enthusiasm and Wall Street skepticism remains stark, with the average analyst maintaining a “Hold” rating and a price target suggesting further downside in the near term.
Palantir’s Strong Performance in Q4
Palantir Technologies reported exceptional Q4 results, with revenue soaring 36% year-over-year to $828 million, significantly exceeding analyst expectations. The data analytics company’s momentum was primarily driven by its artificial intelligence platform (AIP) and robust U.S. business growth.
Its U.S. commercial revenue jumped 64% year-over-year, while U.S. government revenue grew 45%, highlighting strong domestic demand for AI solutions. Total U.S. business growth reached 52% year-over-year.
“In this AI revolution, anyone looking for a solution that actually works is going to choose Palantir,” said Ryan Taylor, Chief Revenue Officer. It also secured $1.8 billion in total contract value during Q4, marking a 56% increase from the previous year.
Notable customer wins included a $67 million contract with a major U.S. pharmacy chain for prescription fulfillment automation and a $40 million expansion deal with an American telecom company.
Chief Technology Officer Shyam Sankar emphasized the company’s unique position in delivering “enterprise autonomy,” citing examples where Palantir’s technology reduced five-day processes to three minutes at a multinational bank.
Palantir projects 2025 revenue of approximately $3.75 billion, representing 31% year-over-year growth. The company expects U.S. commercial revenue to grow at least 54% to over $1.079 billion. It also achieved record profitability, with an adjusted operating margin of 45%, and generated $517 million in adjusted free cash flow during Q4.
Palantir’s customer base expanded 43% year-over-year to 711, with U.S. commercial customers growing 73% to 382. This growth reflects the accelerating adoption of its AI solutions.
Is PLTR Stock Overvalued?
Analysts expect Palantir to report revenue of $3.78 billion in 2025 with adjusted earnings per share of $0.55. So, priced at 193x forward earnings, the tech stock remains unreasonably expensive despite the ongoing pullback.
Out of the 19 analysts covering PLTR stock, three recommend “Strong Buy,” 10 recommend “Hold,” one recommends “Moderate Sell,” and five recommend “Strong Sell.” The average target price for the tech stock is $81.82, almost 25% below the current trading price.
