Palantir (PLTR, Financial) stock fell 10% on Monday morning after the Pentagon announced a plan to cut its $850 billion defense budget by 8% annually over the next five years. The move jeopardizes Palantir's government contract revenue, which makes up roughly 42% of total income. Despite robust performance in the commercial sector, investors remain cautious as shares trade at 62 times forward sales.

As Palantir shifts from a government data specialist to an AI operating system provider, analysts look to determine how the company's government and commercial streams are evolving. Investors are now reevaluating their positions in the defense sector in case the Pentagon cuts coming up may limit future growth in the sector. However, as the fiscal landscape begins to change, these market developments are closely tracked by market players.