The Nasdaq Plunged 10% While Palantir Soared In Q1. Here's Why.

The market saw red for much of the first quarter of 2025. Shares of Palantir Technologies (NASDAQ: PLTR), however, bucked the trend. While the S&P 500 lost 4.6% and the Nasdaq Composite lost 10.4%, Palantir finished the quarter up 11.6%.

The artificial intelligence (AI) company's stock was propelled by optimism in regard to a new administration, the release of another monster earnings report showing continued momentum, as well as a slew of new client announcements.

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Another major report

In February, Palantir released its Q4 numbers, beating already high expectations from Wall Street. The company posted earnings per share (EPS) of $0.14 cents on sales of $828 million. Consensus estimates were 11 cents per share on $776 million in sales.

Palantir's 36% year-over-year growth impressed investors, showing continued strong momentum. CEO Alex Karp echoed this optimism, saying, "Our business results continue to astound, demonstrating our deepening position at the center of the AI revolution."

Customer growth continues

The impressive sales growth was in large part driven by Palantir's equally impressive customer-count growth. The company's total client list grew 43% year over year and 13% quarter over quarter. It seems to be continuing, as the first quarter saw Palantir announce partnerships with a diverse set of new clients from banks to environmental technology companies to manufacturers looking to onshore operations in the U.S.

The new administration sparks optimism

Much of Palantir's gain in Q1 was driven by investor sentiment following the election of Donald Trump. Investors believe the new administration will be favorable for companies like Palantir and that it could win new contracts, especially uberlucrative defense contracts.

However, despite the initial optimism and the stock's 11.6% gain by the end of Q1, it was up more than 65% earlier in the quarter. The stock began falling as it was announced the Trump administration would seek extensive cuts at the Pentagon in late February, deflating investors' hopes. Shares of Palantir are down 36.1% since its peak on Feb. 18.

Now, however, optimism may have returned as Trump seems to have reversed course, announcing he would seek a record budget for the Department of Defense (DOD). The movements over the last few months highlight just how volatile the stock can be. That's in large part because it carries a hefty premium, to put it lightly. Its current price-to-earnings (P/E) ratio is north of 400 -- an astronomical figure. I would avoid Palantir for now; its stock is just too expensive.

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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.