Palantir Sinks on Planned Pentagon Budget Cuts. Is It Time to Sell the Stock?

Core Viewpoint - Palantir Technologies is facing potential challenges due to a proposed 8% reduction in the Department of Defense budget, which could impact its revenue as the government is its largest customer, accounting for nearly 42% of total revenue in 2024 [2][12] Group 1: Financial Impact - The Pentagon's budget is set to be slashed by approximately $50 billion from its $850 billion budget, which raises concerns about future funding for Palantir's projects [1] - The Department of Defense budget is expected to decrease by 8% annually over the next five years, potentially limiting growth opportunities for Palantir [2][6] - Palantir's government revenue growth has been inconsistent, with a trough of 14% in 2023 after previous growth rates of 19% in 2022 and 47% in 2021, but rebounding to 30% growth in 2024 [7] Group 2: Company Developments - CEO Alex Karp has initiated a new Rule 10b5-1 plan, allowing him to sell nearly 10 million shares through mid-September, indicating a shift in selling parameters [3][4] - Palantir's commercial sector has seen significant growth, with a 54% revenue increase in 2024, driven by its AI platform [8] - The company has transitioned from a data analytics vendor to an AI operating system, focusing on the application and workflow layers of AI [10] Group 3: Market Position and Valuation - Despite recent stock price drops, Palantir trades at a forward price-to-sales multiple of 62 times 2025 analyst revenue estimates, raising concerns about its valuation [12][15] - The company has the potential to grow into its valuation if it successfully transitions customers from proof-of-concept to production [14] - The uncertainty surrounding the impact of DoD budget cuts on Palantir's revenue raises questions about justifying its current stock valuation [15]