Why Palantir Technologies Stock Crashed (Again) on Thursday

After defying gravity for the past couple of years, Palantir Technologies (NASDAQ: PLTR) has finally hit turbulence, with the stock plunging as much as 14.9% on Thursday. As of 11:27 a.m. ET, the stock was still down 11.4%.

Two reports impacted the artificial intelligence (AI) software and data mining specialist and weighed on investor sentiment -- but things might not be as bad as they seem.

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Trouble in paradise?

Palantir has been on a tear, gaining roughly 800% over the past three years, but two developments this week have sent the stock reeling.

First, reports emerged that CEO Alex Karp had canceled his preexisting trading plan and replaced it with a new one. The new so-called Rule 10b5-1 plan was filed with the Securities and Exchange Commission late last year and revealed plans to sell 9,975,000 shares between now and September. That would have amounted to roughly $1.24 billion before the stock began its precipitous fall. This isn't all that surprising, since much of the chief executive's compensation is stock-based.

The second factor weighing on the stock is plans for big cuts in the defense budget by the Trump administration. Defense Secretary Pete Hegseth told senior Pentagon officials to draw up plans to slash the U.S. military and defense budget by 8%. Palantir made a name for itself by selling advanced software systems to intelligence and defense departments before expanding into enterprise data mining and AI systems. Investors concluded that this change in priorities would reduce Palantir's opportunity.

However, some on Wall Street are taking a different view. In a note to clients Thursday morning, Wedbush analyst Dan Ives wrote, "Palantir's unique software approach will enable the company to gain MORE IT budget dollars at the Pentagon....not less, despite these initial knee-jerk reactions from the Street." He went on to say that Palantir was "well positioned" to benefit from Washington's more disciplined spending approach.

So is Palantir a buy?

Palantir has entered correction territory, with the stock shedding more than 20% of its value over the past two days. Despite its decline, the stock is still selling for 178 times next year's expected earnings and 49 times sales. Even after its recent crash, the stock is still wildly overvalued and subject to extreme volatility.

I still believe that Palantir has a long runway ahead -- and I'm keeping all my shares -- but investors should exercise care, given the stock's lofty valuation.

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Danny Vena has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.