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Valued at a market capitalization of $200 billion, Palantir Technologies (PLTR) has been among the most volatile stocks on Wall Street since its initial public offering in 2020. The tech stock traded around $9.20 after it went public and fell to $6.50 in December 2022. It then soared to a record high of $125 this year and is currently trading near $90.
Why Is Palantir Stock Volatile?
Palantir Technologies (PLTR) saw its share price more than triple in 2024 due to an acceleration in revenue growth. In the fourth quarter of 2024, its sales rose by 36% year-over-year to $827.5 million. In the year-ago period, its top-line growth was much lower at 20%.
Palantir’s AI platform was a key growth driver, enabling enterprises to integrate artificial intelligence solutions easily. The data analytics firm gained traction in the government and commercial sectors. In fact, in Q4 2024, U.S. government revenue rose by 45%, while commercial sales grew by 64%. Moreover, Palantir’s inclusion in major indices such as the S&P 500 ($SPX) and Nasdaq-100 ($IUXX) enhanced market visibility while attracting fund flows from passive ETFs.
On the flip side, investors have been worried about the tech stock’s sky-high valuations, as it trades at a forward price-sales multiple of over 50x and a price-earnings multiple of 290x.
CEO Alex Karp’s announcement of a stock sale program has worried investors about his belief in the company. At the same time, Defense Secretary Pete Hegseth’s comments regarding possible defense budget cuts have created uncertainty around government contracts.
Palantir Depends on Government Contracts
Palantir Technologies’ stock has fallen more than 20% over the past five days following reports of a potential 8% annual cut to the U.S. defense budget over the next five years. This highlights the risks the data analytics company has consistently warned about in its regulatory filings.
In its latest 10-K filing submitted on Feb. 18, Palantir explicitly acknowledged this vulnerability: “U.S. government spending levels for defense-related and other programs are uncertain and may not be sustained at the levels associated with government fiscal year 2024.”
Palantir reported $2.9 billion in total revenue for 2024, with government clients accounting for 55% ($1.6 billion) of that total. U.S. government customers generated $1.2 billion in revenue, representing nearly 42% of Palantir’s overall business and showing impressive 30% year-over-year growth.
This concentration makes Palantir vulnerable to shifts in federal spending priorities, budget delays, and political changes.
What’s Next for PLTR Stock?
Palantir has focused on expanding its commercial business to offset government contract volatility. In 2024, commercial revenue reached $1.3 billion, growing 29% year-over-year and accounting for 45% of total revenue — up from just 22% in 2019, when the company primarily served government clients.
Its U.S. commercial business has shown strong momentum, jumping 54% to $702.3 million in 2024. This acceleration comes as Palantir’s Artificial Intelligence Platform (AIP) gains traction among corporate customers seeking to leverage their proprietary data with AI capabilities.
As the federal budget process unfolds and defense spending priorities become clearer, Palantir’s diversification efforts should act as a hedge against the risks it has consistently highlighted in its filings.
Out of the 19 analysts covering Palantir 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 $85.11, below its current trading price.
