Why Palantir Stock Has Fallen 30% in a Month, and Why Continued Declines Are Inevitable

Since closing at its all-time high share price of $124.62 on Feb. 18, Palantir (NASDAQ: PLTR) stock has headed almost straight back down. By Thursday's close, just four weeks after hitting its high, Palantir had lost almost 30% of its value. At one point, the stock was down closer to 40%.

So what's the deal with Palantir? Just four weeks ago, it seemed this company was every investor's favorite defense stock. And now all of a sudden, it's a pariah. What's up with that?

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I see at least three main reasons for Palantir's freefall.

Nasdaq sell-off

The Nasdaq Composite (NASDAQINDEX: ^IXIC) recently plunged 13.7% in about three weeks, and it's been a blow to investors in formerly red-hot tech stocks that have suddenly gone ice cold.

As one of the primary beneficiaries of investors crowding into a handful of popular tech stocks, Palantir stock more than tripled over the past year before hitting its current speed bump. As the saying goes, "The bigger they are, the harder they fall." Not only was Palantir stock looking expensive as we entered this current downturn, investors also had a lot of paper profits racked up, giving them a strong incentive to sell and lock in those profits before they disappeared.

The Trump tariffs

Adding to investor worry is the new president's inconsistent messaging on what tariffs will be implemented, when, and how much they'll amount to. "The market hates uncertainty," is another investing quote that springs to mind. And it's not just investors who are uncertain which way the tariff winds are blowing -- so are CEOs.

This may not be as big a worry for Palantir as for companies that do a lot of importing. But the prospect of other countries responding to President Donald Trump's tariff war by raising trade protections of their own could, in fact, crimp Palantir's business. Because while it's primarily an American company, Palantir actually gets more than one-third of its revenue from international sales (according to data from S&P Global Market Intelligence).

Image source: Getty Images.

This DOGE might bite

Speaking of where Palantir gets its revenue, let's not forget the two-thirds of the company's money that it makes right here in the United States -- primarily from government customers such as the Department of Defense. Right now, Elon Musk and his DOGE cost-cutting team are slashing government spending, though, and this could pose a clear and present danger to Palantir's revenue stream going forward.

The good news: Analysts polled by S&P Global don't think this will be an issue, as they're continuing to forecast 32% revenue growth for Palantir this year, up from 29% in 2024. Indeed, Palantir's focus on using artificial intelligence as a cost-cutter and force multiplier in military spending, for example, may end up working to Palantir's benefit as costs are cut elsewhere.

It's just that right this moment, we're not 100% sure which way this will play out. Again, that kind of uncertainty makes investors nervous, and that's a big part of the reason why Palantir stock is suffering a price rollback right now.

Image source: Getty Images.

My biggest worry about Palantir

To bring this article full circle, though, let me tell you why I, personally, worry that Palantir stock will keep going down:

Remember how I said Palantir's stock tripled over the past year, before starting to give back its gains? Well, despite falling 30% over the last month, Palantir is still up roughly 267% over the past 52 weeks. Mind you, there's some justification for Palantir stock going up in price, even if the amount is extreme. Most notably, Palantir generated more than $1.1 billion in positive free cash flow last year, up 64% from 2023, and nearly 2.5 times the amount of 2024 net profit the company reported, which is astoundingly good.

But is it good enough to justify the valuation here?

Consider: Palantir shares still sell for a staggering 460 times trailing earnings, around 220 times free cash flow, and almost 70 times sales. And granted, fast-growing software stocks often carry eye-popping margins, but if we compare Palantir to, shall we say, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Amazon.com (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Oracle (NYSE: ORCL) all of which work on the Pentagon's big Joint Warfighting Cloud Capability (JWCC) IT contract, none of their valuations comes close to the sky-high prices investors are paying for Palantir shares. Of the four, Microsoft is arguably the most expensive, but even Microsoft costs only 11 times trailing sales. At the other end of the scale, Amazon stock is trading at 3.3 times sales.

And across all four of these Palantir competitors, the average P/E ratio is just 31 -- less than a tenth of Palantir's valuation.

Even growing sales at 32% per year, Palantir's stock costs way more than any comparable company. For this reason, I think it's a virtual certainty that Palantir stock, down 30% in four weeks already, has further to fall.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Oracle, Palantir Technologies, and S&P Global. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.