By Mackenzie Tatananni

Palantir Technologies stock rose on Wednesday as Wall Street braced for a barrage of tariffs on U.S. trading partners from President Donald Trump.

The three major U.S. indexes were in the red, but Palantir rose 1.3% to $85.74 after paring earlier losses. Shares of the software company, best known for its suite of artificial-intelligence tools, seemed set to extend their gains after closing up 0.3% on Tuesday and snapping a five-day losing streak.

While Palantir remains up 278% over the past 12 months, the has fallen 31% from its record closing high of $124.62 in mid February.

Uncertainty about government funding cuts has caused shares to waver because Palantir is a major federal contractor. In 2024, $1.2 billion out of a total $1.9 billion in revenue came from the government.

Morgan Stanley analysts noted last week that Palantir was at higher risk for cuts to forecasts for earnings than other stocks they cover, in part because of its reliance on government spending.

Management has pushed back on these concerns. Chief Technology Officer Shyam Sankar said on the company's latest earnings call that the real issue was a "lack of accountability in government."

"I think [the Department of Government Efficiency] is going to bring meritocracy and transparency to government, and that's exactly what our commercial business is," Sankar said. "The commercial market is meritocratic and transparent, and you see the results that we have in that sort of environment. And that's the basis of our optimism around this."

Palantir works closely with the Department of Defense, which isn't immune to funding cuts and restructuring. The Pentagon has proposed trimming roughly $50 billion from the budget each year while prioritizing spending on drones and other military technology.

At the end of last month, Defense Secretary Pete Hegseth signed a memo directing the termination of more than $580 million in grants, contracts, and programs. Among the casualties was a software development program for the Defense Civilian Human Resources Management System.

As Barron's previously reported, other factors contributing to Palantir's decline could be more fundamental, such as the stock's valuation and high beta, a measure of its volatility against the broader market. Those metrics show it has gotten considerably more expensive and volatile than the broader market, a possible red flag for investors.

Still, William Blair analysts led by Louie DiPalma say near-term factors could send the stock price even higher. The analysts said they expect the U.S. Army to announce a contract award for Palantir's Next-Generation Command and Control program sometime soon.

"Given the size and strategic significance of this program that plans and executes battlefield missions, we believe that Palantir's annual recurring revenue from NGC2 will approach $100 million over time," the analysts wrote. This would make NGC2 one of Palantir's largest contracts to date.

There are other bright points, such as the Army's decision to halt the development of a successor to one of Palantir's data platforms. "The Army is now leaning toward sticking with Vantage, which is one of Palantir's largest overall contracts, generating about $115 million in annual recurring revenue," the analysts said.

In their view, the company's offerings seem aligned to the Trump administration's "emphasis on fixed-price technology delivery."

While Palantir's revenue growth and operating margin rank among the highest in the software sector, William Blair maintained a Market Perform rating on the shares. The firm upgraded Palantir stock from Underperform on March 5.

Write to Mackenzie Tatananni at mackenzie.tatananni@barrons.com

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April 02, 2025 12:37 ET (16:37 GMT)

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