Palantir Stock Falls—What Lies Ahead?

Shares of Palantir Technologies Inc. (NASDAQ: PLTR) have seen a significant drop of 17% over a period of just two trading sessions. Over the past 18 months, Palantir has seemed resilient, like a boxer who continues to absorb punches without falling.

Recently, however, two major news events have hit the stock hard, causing its price to tumble and triggering concerns among investors.

The key question now is whether this decline indicates a temporary setback in an ongoing positive trend for the company or if it signals the potential for a more serious downturn.

Concerns Over Stock-Based Compensation

Investors have pointed to two main factors driving the recent sell-off in PLTR stock. Firstly, it was revealed that CEO Alex Karp plans to sell up to 9.975 million shares between now and September 12, 2025, potentially worth around $1.2 billion at the close price from Wednesday.

Many shareholders are unhappy with the concept of stock-based compensation (SBC) for Karp and other employees. For the upcoming year of 2024, Palantir is expected to spend more than $1.5 billion on SBC.

While this approach can help attract talented individuals, it results in stock dilution and impacts Generally Accepted Accounting Principles (GAAP) earnings adversely. In Q4 2024, for instance, the company’s GAAP operating margin stood at just 1%, while the adjusted operating margin was a healthier 45%.

Palantir’s latest earnings report hinted at a gradual reduction in SBC as a percentage of revenues.

It is also essential to note that Karp’s recent selling plan comes after he had previously canceled a broader plan from December 2023, which allowed for the sale of 48.9 million shares. Karp sold a total of 40.7 million shares in 2024 alone.

The conclusion to draw is that while this news is causing concern, it does not significantly increase Karp's overall SBC.

A Reaction to Defense Budget Cuts

Karp's SBC announcement coincided with U.S. Defense Secretary Pete Hegseth's directive for the Department of Defense to identify $50 billion in program cuts for the next year.

Given that Palantir generates approximately 55% of its revenue from the U.S. government, some investors are concerned that potential revenue may decline at a time when the stock is priced to perfection. This has led many to sell their shares preemptively.

However, this assumption is contested by Dan Ives, a seasoned Palantir bull from Wedbush. Ives believes that Palantir’s specialized software will actually help the company capture even more IT funds from the Pentagon despite the initial negative reactions from the market.

He maintained his Outperform rating and a price target of $120 for PLTR stock, emphasizing two key points.

Firstly, the stock had recently peaked at $125, exceeding even the most optimistic targets, making a pullback likely. Secondly, the recent news about Karp’s SBC and potential defense budget cuts does not entirely clarify the drop in stock price; rather, they serve as a convenient excuse for both institutional and retail investors to take profits, which they likely planned to do anyway.

With bearish momentum now in play, it is possible that the stock could decline further.

It’s important to remember that despite these recent drops, PLTR stock is still up by 33.6% in 2025 and over 330% in the last 12 months, marking it as one of the better-performing tech stocks.

What’s Next for Investors?

For those actively trading, exiting the stock may be a wise decision. If you are a long-term investor, the current correction has not yet reached alarming levels.

However, if you have recently entered the stock or are considering a position, patience may be key. Any objective assessment shows PLTR stock is currently overvalued, which means it could drop significantly if selling pressure continues, especially with daily trading volume nearly doubling average levels.

Close monitoring of the stock around the $83 mark is recommended, as this reflects its price prior to the most recent earnings report.

If the stock retraces to that level, it would represent a decline of around 33%. This drop might entice long-term investors to consider buying more shares.

A decline of this magnitude could still happen within the next few trading sessions, a prospect that could be tough for many investors to handle.

Such fluctuations are part and parcel of investing in high-growth stocks like Palantir.

Investment Considerations

Before investing in Palantir Technologies, potential investors should delve deeper and gather insights.

While analysts currently rate Palantir as a “Reduce,” there are numerous other stocks that top experts recommend as more solid investments.

Research and due diligence remain crucial to making informed decisions in the stock market.

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