Palantir Stock Skids—How Much Further Can It Fall?

Key Points

• PLTR stock is down more than 17% after two pieces of news finally gave PLTR skeptics something to cheer.
• Palantir’s stock-based compensation policy and potential DOGE cuts to the Pentagon are cited as reasons, but neither explains the extent of the sell-off.
• With daily trading volume nearly double the average, investors should expect volatility and possibly more downside.

Shares of Palantir Technologies Inc. NASDAQ: PLTR are down 17% in two trading sessions. For much of the last 18 months, Palantir has been like a boxer who continues to have opponents throw punches, none of which land with any effect.

However, two news items in the last couple of days have acted like body blows on the stock, and the share price plunge is wobbling investors' knees.

The question is whether this is just an expected pause in the company’s bullish story or if this is the time when the bears will move in for their knockout blow.

Investors Are Crying Foul on Stock-Based Compensation

Two key reasons are being given for the sell-off in PLTR stock. The first came when news surfaced that Palantir's chief executive officer (CEO) Alex Karp adopted a plan to sell up to 9.975 million shares through September 12, 2025. That would be approximately $1.2 billion at Wednesday’s closing price.

Many investors oppose stock-based compensation (SBC) for Karp and other Palantir employees. For the full year 2024, the company paid out more than $1.5 billion in SBC.

This can be a way for a company like Palantir to continue to attract top talent. However, it dilutes the company’s stock and depresses GAAP earnings. For example, in Q4 2024, the company’s GAAP operating margin was approximately 1%, but its adjusted operating margin was 45%.

The company’s most recent earnings report suggested it would gradually reduce SBC as a percentage of its revenue.

It should also be noted that Karp’s new plan came after he canceled a plan adopted in December 2023 that allowed for sales of up to 48.9 million shares. In 2024, he sold a total of 40.7 million shares.

The takeaway is that while this is making news, it doesn’t appear to significantly add to Karp’s SBC.

Selling the Assumption, Not the News

Karp’s SBC disclosure came on the same day that U.S. Defense Secretary Pete Hegseth announced his directive for the Department of Defense (DOD) to identify $50 billion in program cuts for the next year.

The assumption is that Palantir, which relies on the U.S. government for approximately 55% of its current revenue, could see a revenue loss at a time when the stock is priced for perfection, and then some investors are selling first and asking questions later.

That assumption is being challenged by long-time Palantir bull Dan Ives of Wedbush. Ives has chimed in to note that “...Palantir’s unique software approach will enable the company to gain MORE IT (information technology) dollars at the Pentagon...not less despite these initial knee-jerk reactions from the Street.”

Ives reiterated his Outperform rating and $120 price target on PLTR stock, which signals two key takeaways.

First, with the stock recently hitting $125, it surpassed even the most bullish targets, making a pullback overdue.

Second, neither Karp’s SBC plan nor potential defense budget cuts fully explain the sell-off. Instead, they provide a convenient excuse for institutional and retail investors to take profits—something they were likely planning to do anyway.

Now that momentum is in the bears’ favor, the stock could have further to fall.

With that in mind, it’s important to note that PLTR stock is still up 33.6% in 2025 and more than 330% in the last 12 months. Both numbers make it one of the best-performing technology stocks.

Is This the Beginning of a Longer Trend?

If you’re a trader, you’re already out of the stock. And if you’re a long-term investor, this correction hasn’t reached the scary stage...yet.

But what do you do if you just entered the stock recently or have yet to take a position?

Although it’s easy to say and tough to do, the best advice is to let this sit for a couple of days. Any conventional, objective measure overvalues PLTR stock, which means when it starts to roll over, it can have a long way to go, particularly with the daily trading volume being nearly double its average.

Right now, investors may want to watch the stock closely around the $83 mark. That’s about where it was before the company’s most recent earnings report.

The stock shot higher since that point, which could be the extent of the drop. However, if it fell to that level, it would mark a drop of around 33%, which would likely be enough to get long-term retail investors interested in adding shares.

That kind of drop could still occur in the next few trading sessions, which would be difficult for many investors to stomach.

Such is the risk—and reward—of high-growth stocks like Palantir.