Retail investors were nursing their wounds Thursday after Palantir Technologies Inc. (PLTR) shares plummeted for a second straight session.
The stock lost as much as 15% after shedding 10% the day before. Leveraged exchange-traded funds tied to the stock, like the GraniteShares 2x Long PLTR Daily ETF (PTIR) and the Direxion Daily PLTR Bull 2X Shares (PLTU), doubled those declines.
Shares of Palantir, PTIR, and PLTU closed at record highs on Tuesday, buoyed by strong business fundamentals and widespread enthusiasm among retail investors about the companies’ prospects.
The company is led by Alex Karp, an eccentric and outspoken CEO. Over the years, Palantir has cultivated a strong, almost cult-like following, similar to Elon Musk’s Tesla Inc. (TSLA), with retail investors closely tracking its every move.
According to etf.com’s stock finder tool, Palantir is held in 215 ETFs. The largest holder is the SPDR S&P 500 ETF Trust (SPY), with 25 million shares. The largest percentage is the 12% held by the REX AI Equity Premium Income ETF (AIPI).
Palantir has a reputation for developing powerful analytics software that helps governments track down criminals and terrorists. The company has since widened its customer base to corporations in a push to fuel more growth.
However, sales to the U.S. government still accounted for 60% of the company’s total U.S. revenue during the fourth quarter.
That reliance on the government is what caused this week’s big slide in the stock. On Wednesday, the Washington Post reported that Defense Secretary Pete Hegseth was looking to cut or redirect $50 billion of the U.S. military’s spending.
As a supplier of software to the military, some investors are worried that the cuts would hurt the firm’s results. However, not everyone is convinced that any Pentagon cuts, should they come to pass, will hurt Palantir.
Dan Ives, an analyst at Wedbush Securities, believes that the selloff in the stock is misguided.
“Very simply DOD budget cuts and more focus on efficiency bullish for PLTR … not a headwind. They will GAIN more share of DOD budget dollars,” he wrote on X.
On the flip side, there is a case to be made that regardless of any impact on Palantir’s business, the stock is ripe for a pullback following enormous gains over the past year. Since the start of 2024 to the stock’s high this week, it rose nearly eightfold.
Even after the recent pullback, the stock trades at 61 times forward sales and 185 times forward earnings, astronomical valuations for a company that is growing at 36% year on year.
