- Spending cuts at the Pentagon and in defense has sent Palantir’s stock plunging over the past week. Still, several analysts and market watchers believe DOGE’s emphasis on using tech to find efficiencies will be a long-term tailwind for the government contractor. The modern-day Manhattan Project around AI that Karp is calling for would also likely boost the company’s shares.
Believers in AI software darling and government contractor Palantir have had plenty to cheer about since the start of last year. Even after last week’s stock-price slide, which continued Monday, the stock is up roughly 500% since last January after being the S&P 500’s top performer in 2024. There’s no getting around a basic fact, however: The stock is mind-bogglingly expensive, at least by most traditional metrics.
Shares currently trade at roughly 475 times earnings over the past 12 months, according to Bloomberg estimates, compared with the current average of 29 for the tech-heavy Nasdaq. Analysts and traders typically prefer a price-to-earnings ratio based on forward earnings—after all, stock picking is about looking ahead—but Palantir’s stock is currently trading at about 170 times the Street’s earnings estimates for the next 12 months, per Bloomberg.
As Elon Musk’s DOGE underlines a new focus on government cost-cutting, analysts bullish on Palantir say this increased scrutiny on spending bodes well for the company’s value proposition. Still, news of cuts at the Pentagon and plans to slash defense spending have sent Palantir shares plunging 25% since last week, including a 10% drop on Monday.
Among 29 analysts surveyed by Bloomberg, only four have a buy rating on the company’s shares. The consensus 12-month price target for the stock is about $93—just $3 north of where it sits as of Monday’s close.
Alex Karp’s message for Silicon Valley
CEO Alex Karp has been part of the selling spree, too, offloading nearly $2 billion of stock since the start of 2024, according to data from the Washington Service, an investment data provider, with more sales planned for this year. Still, Karp loves to thank retail investors for their support and revel in their mutual gains.
“We’re doing it. We’re doing it. And I’m sure you’re enjoying this as much as I am,” Karp said in comments addressed to individual shareholders at the conclusion of the company’s latest earnings call in early February.
He also reflected on being proud of the company’s work “in places we can’t talk about,” presumably a reference to its classified work for defense and intelligence agencies, and serving the interests of the United States and its allies in the Western world. That sort of language hasn’t been very common in Silicon Valley over the past few decades, something Karp says needs to change in a book released last week, titled The Technological Republic: Hard Power, Soft Belief, and the Future of the West.
Karp and coauthor Nicholas W. Zamiska, a Yale Law School grad who works in the office of the CEO at Palantir, argue that Big Tech became too fixated on trivial technology for the consumer market. In other words, companies have worked on monetizing online advertising and building social media platforms rather than devoting themselves to the military and national security work at the heart of Silicon Valley’s origins in the 1950s.
As AI comes not just to the workplace, but also the battlefield, Karp and Zamiska claim that the West is in need of a modern-day Manhattan Project. “A union of the state and the software industry,” they write, is necessary to ensure America and its European allies remain as dominant as they were in the second half of the 20th century.
In an extensive (and highly critical) book review, Bloomberg’s John Ganz said Karp and Zamiska describe a “dark and depressing future.” He acknowledged, however, that it makes for a great Palantir sales pitch.
“That’s one way to justify an expensive stock,” Ganz wrote, “and one that would seem to live up to the grandiosity of their vision. And now, with the DOGE experiment in rewiring the government, we have some sense of what such a merger might look like.”
Palantir declined to comment for this story.
Why Palantir could thrive amid DOGE
Some analysts and market participants who follow the stock, however, believe Palantir’s value proposition shows why its eye-watering valuation potentially makes sense. As Bank of America analyst Mariana Pérez Mora recently told Fortune, the tragic events of 9/11 were an important catalyst to the founding of Palantir: The CIA was its first major client, and that list soon included the FBI and the National Security Agency.
Palantir has been focused on helping enterprises operationalize data, meaning those organizations can use the software to make relevant and timely decisions. Critically, the company is accustomed to serving clients that can’t afford to have information get into the wrong hands. As companies had to make rapid-fire alterations to their supply chains during the pandemic and the West reckoned with the reality of Russia’s invasion of Ukraine, Palantir’s credentials were underlined.
“We call it the overnight AI success 20 years in the making,” said Mora, who is a vice president of equity research in aerospace and defense. Meanwhile, Mora also believes Palantir’s emphasis on using tech to create more efficiencies and minimize wasteful spending means DOGE should end up being a positive tailwind for the government contractor.
That may be true in the long term, said Ted Mortonson, a managing director and tech desk strategist at Baird, but he’s heard that approvals of nearly all deals with federal agencies—even those involving Palantir—are being pushed to the second half of the year.
That’s at least a speed bump for a company that generated 55% of its $2.9 billion of revenue in 2024 from government contracts.
“I think people are just getting out of the way,” Mortonson said of the stock’s recent selloff.
Still, the company’s U.S. commercial revenues grew 64% last year, and Mora thinks that growth is just beginning as Palantir helps its clients save money—and then benefits from those funds being invested in new priorities, especially regarding AI.
Mora has a $125 price target on the stock, implying a nearly 40% upside based on Monday’s closing price. However, the Street really cares about what the company can do in the next five to 10 years, she said. Early in February, she had the company trading at an enterprise value of just 15 times its projected earnings before interest, taxes, depreciation, and amortization in 2035.
Under those assumptions, the stock doesn’t seem expensive after all. Some investors may just be ready to buy the dip.
