Palantir Share Price Drops Amid Pentagon Budget Cuts

The share price of
Palantir







fell by as much as 12.5% on Wednesday. This decline was triggered by news that CEO Alex Karp had adopted a new stock trading plan, along with a report that the Pentagon is set to prepare for an 8% annual cut to the U.S. defense budget over the next five years.

The Pentagon Budget Cut Orders

The Washington Post reported that Defense Secretary Pete Hegseth ordered senior Pentagon leaders to develop plans to slash the defense budget. This directive was issued promptly, with the initial cut to be detailed by Monday. The budget for the current fiscal year stands at approximately $850 billion.

Impact on Palantir

Palantir, widely recognized for its software and technology services to defense agencies, experienced significant market reactions. The company closed trading on Wednesday at $112.06 per share, a 10% decline from its previous close.

In early February, Palantir reported robust financial results. The fourth quarter of 2024 saw revenue of $828 million, with adjusted earnings of 14 cents per share. Despite this performance, the company’s market capitalization of over $255 billion made it highly sensitive to external factors, as evidenced by its nearly 50% year-to-date stock price increase.

Why This Matters

Palantir’s high valuation, with a price-to-earnings ratio of nearly 600-to-1, underscores the market’s perceived value in the defense technology sector. However, the Pentagon budget cuts pose a significant risk to the company’s core business, which heavily relies on government contracts.

Karp Defends Elon Musk

During an appearance on CNBC’s “Squawk Box,” Palantir CEO Alex Karp defended Elon Musk, who was appointed by President Donald Trump to oversee efforts aimed at reducing government spending, known as the “Department of Government Efficiency” (DOGE).

Karp advocated for a more constructive dialogue, suggesting that the progressive left should engage with Musk to understand and potentially refine the methods being implemented by DOGE. However, criticism of these efforts has persisted, with successful legal challenges against some of their methods.

Market and Political Context

It is crucial to note that the current administration has been actively pursuing budget cuts and workforce reductions within the federal government. Karp’s defense of Musk highlights the complex interplay between corporate interests and government policies, especially in the technology and defense sectors.

Conclusion

The steep decline in Palantir’s stock price following CEO Karp’s actions and the Pentagon budget cuts report indicates the market’s sensitivity to geopolitical and policy shifts. As the Pentagon prepares to implement budget cuts, the impact on defense contractors like Palantir could be profound, affecting both their financial health and investor confidence.

Stay tuned for further updates as developments in government spending and defense policies continue to shape the market.

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