• Palantir stock has fallen over 20% since last Tuesday.
• Plans for defense spending cuts have worried investors about a key source of revenue.
• Analysts have been cautious about Palantir's high valuation even after the company has reported strong earnings.

Palantir stock extended a steep decline on Monday, caught in a tough sell-off that began at the beginning of last week.

Shares in the AI-powered data software company have tanked 25% from their peak last Tuesday, trading at around $90.61 at 3:10 p.m. on Monday.

The stock, which is a favorite among retail traders, began tumbling last week after US Defense Secretary Pete Hegseth announced plans to cut US defense spending by 8%, or about $50 billion.

The move has shaken Wall Street's confidence in Palantir's growth prospects. The Department of Defense, its biggest customer, accounted for 41% of the firm's revenue in the fourth quarter.

The same day the stock sold off on the news of cuts to the defense budget, traders digested an amended stock-trading plan from CEO Alex Karp that would allow him to sell up to nearly 10 million shares worth more than $1.2 billion through September 12. He owns around 2.5% of the company.

By the end of last Wednesday's session, the stock had fallen 10%. Prior to that plunge, Palantir was one of the best performers in the S&P 500.

The rout hasn't been by the stock's already high valuation, and even as the company has reported strong earnings results in recent quarters, it doesn't have many Wall Street analysts in its corner.

Following its latest earnings, analysts at Deutsche Bank said its premium valuation would be nearly "impossible to grow into," while Jefferies said its price could only be justified by immense growth in its business through the rest of this decade.

Palantir's four-day plunge snaps a string of gains that pushed the stock to record highs since it reported earnings on February 3.

The tech company over the years has nurtured a fanbase of retail traders, thanks largely to Karp's colorful personality.

Among the analysts who haven't soured on the firm is Wedbush Securities analyst Dan Ives. In a note last Thursday, he suggested that Washington's spending cuts are a silver lining for Palantir.

"Palantir is so well positioned for this new disciplined spending environment at the Pentagon and this will ultimately be a positive growth catalyst as the various programs are scrutinized and as Karp & Co. get a bigger seat at the table in the Beltway," he wrote.