Investors are expressing increasing concern over Palantir Technologies as shares plummeted nearly 7% on Thursday, following a significant 10% drop the day before. This downturn comes after stocks reached an all-time high on Wednesday, marking the company’s most challenging day since May. The declines are largely attributed to attention surrounding CEO Alex Karp’s new stock selling strategy and remarks by Defense Secretary Pete Hegseth about potential defense budget cuts, which could impact the company’s financial engagements.
Previously, investor enthusiasm around Palantir was fueled by its reliance on artificial intelligence, making it a standout performer in the S&P 500 last year. Significant inflows from retail investors, often viewed as a driving force behind Palantir’s stock performance, further escalated interest in the company. Data collected by Vanda Research shows Palantir ranked just behind major players like Nvidia and Tesla in retail investor net inflows, solidifying its status as a favorite among individual traders.
The backing from retail investors has been vital, as highlighted by Gil Luria, head of technology research at D.A. Davidson, who noted that “the activity in Palantir is dominated by retail investors.” The company’s executives proactively engage with these traders, showcasing a tailored approach to investor relations that many companies rarely adopt.
Despite recent fluctuations, Palantir’s loyal investor base can bolster its high valuation, which stands at a striking forward price-to-earnings multiple of 194—far surpassing the S&P 500’s average of 22. This reliance on a dedicated retail following has led to a perception of Palantir as a “live-by-the-gun, die-by-the-gun” stock, according to insights from Ritholtz Wealth Management CEO Josh Brown.
The triggering factors for the recent stock pullback include concerns over potential reductions in defense spending by 8% annually over the next five years, which could affect government contracts with contractors like Palantir. However, Palantir executives remain hopeful that the new administration will recognize the value that the company provides. Moreover, Karp’s plans to sell 10 million shares over the next six months have drawn attention, as his leadership style resonates with retail investors much like that of other tech magnates.
This situation highlights the unpredictable nature of stock trends, particularly for companies heavily influenced by retail investors. While the recent declines may raise alarms, the enduring support from this enthusiastic demographic could ultimately sustain Palantir’s growth trajectory. Investors may want to keep a watchful eye on upcoming developments, as Palantir navigates these dynamic market conditions.