Why Palantir Stock Is Plummeting Today

Shares of Palantir Technologies (NASDAQ: PLTR) are trading lower on Monday. The company's stock lost 8.4% as of 11:50 a.m. after losing as much as 11.9% earlier today. The drop comes as the S&P 500 was flat while the Nasdaq Composite lost 0.4%.

Palantir, which provides AI-driven intelligence to commercial and government clients, is seeing its stock pressured by developments in the Trump Administration's push to cut the Pentagon's budget significantly. On Friday, it was announced that the Department of Defense (DoD) would cut more than 5,000 civilian jobs this week.

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The Pentagon is paring down

The move is the first in what the Pentagon says is a mission to eventually fire 5% to 8% of its civilian workforce. Though many members of the DoD are members of the military, a significant portion are civil servants.

The reduction is being overseen by the newly confirmed defense secretary, Pete Hegseth, after President Trump last week pushed for major cuts, telling the Pentagon to reduce its budget by 8% each year for the next five years. Though a 5% to 8% reduction in its civilian workforce would represent a significant cut, it is intended to be the first step. A hiring freeze will follow as well as what it called a "top to bottom" review of the Pentagon's entire budget.

Bad news for a struggling Palantir

Palantir relies heavily on government contracts, especially those from the DoD. It's possible that some of the civilian staff who are let go interface directly with the company.

More than this, however, is the fact that its stock is priced for perfection; even after shares have plunged nearly 25% since last Wednesday, it still carries a very steep price-to-earnings ratio (P/E) of over 490.

The fact that Palantir's rapid sales growth could decelerate even slightly is enough to send shares lower, let alone the specter of Palantir seeing its contracts with the Pentagon canceled or significantly reduced.

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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.