By Callum Keown

Friday looks set to be a crucial day for Palantir Technologies stock after its two-day 15% slump as investors assess whether the weakness is a blip, or something more sustained.

The shares are pointing 1% higher ahead of the open so the damage seems to have paused for now. It's still the third-best performer in the S&P 500 this year, climbing 40% so far in 2025.

Two things in particular spooked investors earlier this week -- CEO Alex Karp's new plan to sell up to $1.2 billion worth of shares and reports that the Trump administration has warned the U.S. Department of Defense about budget cuts. The data analytics company has several military contracts for the use of its artificial intelligence technology.

Both of those things, in the context of Palantir's impressive rally and lofty valuation, have caused concern and raised questions over whether a period of prolonged weakness lies ahead for the stock.

While a third consecutive day of losses does not mean it's the start of a broader slump, investors would certainly hope to see the streak end and some stability return.

Wall Street thinks the stock has further to fall -- analysts covering the shares have an average price target of $95.28, implying 10% downside to Thursday's closing price. Just 31% have Buy ratings on the stock, with 50% saying Hold and 19% recommending Sell.

The shares are expensive, trading at 190 times future earnings after jumping almost nineteen-fold since the end of 2022.

William Blair analysts led by Louie DiPalma reiterated their Underperform rating on the stock late Thursday. Palantir's U.S. government business experienced a pronounced revenue deceleration in 2021 and 2022 and DiPalma said "there is high risk of this happening again."

"A sharp revenue growth deceleration would likely result in valuation multiple contraction," he said, adding that William Blair sees greater than 20% downside to the shares over the next few years.

Barron's argued it may be time to sell Palantir stock earlier this week, before the slump, citing the rally and high valuation. The reasons behind that call are still in play.

Write to Callum Keown at callum.keown@dowjones.com

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February 21, 2025 08:05 ET (13:05 GMT)

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