Palantir’s PLTR stock plunged as much as 25% over the past week following two major developments — CEO Alex Karp’s adoption of a new stock trading plan and reports that the Pentagon has been directed to reduce the U.S. defense budget by 8% annually for the next five years.

The company, popularly known for its defense contracts and technology services, lost about 10.5% in its share price on Feb. 24, 2025, and retreated about 3.3% after hours.

Karp’s Stock Sales Plan

In a recent regulatory filing, Palantir disclosed that Karp’s new trading plan would enable him to sell nearly 10 million shares over the next six months.

Pentagon Budget Cuts Ordered

The Washington Post reported lately that Defense Secretary Pete Hegseth has instructed senior Pentagon officials to draft a plan for significant defense budget cuts. The current budget, approximately $850 billion, is set to be reduced by 8% per year for the next five years, with a deadline for proposals set for Monday.

Palantir’s Market Position

Before the recent sharp decline, Palantir had been one of the strongest-performing U.S. stocks over the past two years, with its share price still up nearly 20% year to date. The company has a market capitalization of over $212 billion and recently reported Q4 revenues of $828 million, with adjusted earnings of 14 cents per share. Palantir trades at a lofty price-to-earnings ratio (trailing 12 months) of 247.20X, in comparison to the industry average of 12.92X.

Trump Administration’s Cost-Cutting Efforts

Since his inauguration for a second, nonconsecutive term on Jan. 20, President Donald Trump has pushed for considerable reductions in government spending and federal workforce numbers. To spearhead this initiative, he appointed Tesla CEO Elon Musk to lead the newly established Department of Government Efficiency (DOGE).        

Bullish Case for Palantir

The PLTR stock has surged about 285% over the past year (as of Feb. 24, 2025). After such a monumental rise, the latest decline can be considered a healthy correction.  Palantir’s Artificial Intelligence Platform (AIP) has gained widespread adoption, helping businesses integrate large language models into operations. AIP’s scalability and adaptability have helped Palantir secure a significant number of deals worth more than $1 million.

Along with a government customer base, Palantir is eyeing to broaden its exposure to commercial markets. Moreover, Palantir and Anduril, two of the leading U.S. defense technology companies, are in discussion with around a dozen competitors to establish a consortium aimed at collectively bidding for U.S. government contracts. The consortium is likely to include Elon Musk’s SpaceX, ChatGPT maker OpenAI, autonomous-ship builder Saronic and artificial intelligence data group Scale AI, as quoted on Yahoo Finance.

Palantir-Heavy ETFs in Focus

Zacks Rank #2 (Buy) Palantir's stock is high-growth in nature. The stock comes from a top-ranked Zacks Technology Services Industry (top 33%). Even if the defense budget is reduced, Palantir’s huge exposure to the government space is a key winning point in the investment rationale.

But then, the typical price target of Wall Street analysts indicates that shares can fall further.Note that based on the short-term price targets offered by 17 analysts, the average price target for Palantir Technologies Inc. comes to $81.82. The forecasts range from a low of $18.00 to a high of $125.00. Palantir shares traded at $87.71 after hours on Feb. 24, 2025.

Against this tricky scenario, investors can ride out the positives of PLTR stock with PLTR-heavy exchange-traded funds (ETFs) like ProShares Big Data Refiners ETF DAT, REX AI Equity Premium Income ETF AIPI and Adaptiv Select ETF ADPV. Note that ETF or the basket approach minimizes the company-specific concentration risks (read: Palantir vs. NVIDIA ETFs: Better AI Plays for 2025?).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Palantir Technologies Inc. (PLTR) : Free Stock Analysis Report

ProShares Big Data Refiners ETF (DAT): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research