Last year, shares of artificial intelligence (AI) software company Palantir Technologies (PLTR 3.35%) went parabolic -- soaring by 340%, which made the company the top-performing stock in the S&P 500. In addition to this feat, Palantir was added to the Nasdaq-100 toward the end of 2024.

Up until mid-February, Palantir stock appeared to be carrying its momentum from last year into 2025. At one point, shares were up by 65% -- trading for around $125 per share.

But over the last month, the stock has entered a downward spiral. As of this writing (March 27), Palantir stock is trading 28% below its prior all-time highs. The ongoing sell-off comes at a time when Palantir just earned inclusion into another exclusive club, the S&P 100.

Let's dig into what is driving investors to flee Palantir stock right now. More importantly, I'll explore Palantir's valuation trends to help assess if now is a good opportunity to scoop up some shares.

Why is Palantir stock selling off right now?

In my eyes, Palantir stock is selling off for two major reasons.

First, investors have become wary of how President Donald Trump's new tariffs could impact economic activity. As a result, growth stocks -- particularly in the technology sector -- have been vulnerable to pronounced sell-offs over the last month. As of market close on March 27, the Nasdaq Composite has returned negative 8% on the year.

When it comes to business-specific issues, there have been some concerns over whether or not Palantir will be impacted given a new cost reduction initiative at the Pentagon. Palantir works closely with the Department of Defense, and roughly half the company's revenue is concentrated in public sector deal flow.

However, as I previously wrote in another piece, Defense Secretary Peter Hegseth's focus on a Software Acquisition Pathway (SWP) strategy at the Pentagon could bode well for Palantir in the long run. In other words, I don't see the budget cuts at the Pentagon as a headwind for Palantir.

Image source: Getty Images.

Is Palantir stock a buy right now?

Before honing in on the current price action around Palantir, let's zoom out and look at the bigger picture.

Over the last 12 months, Palantir stock is up by 262%. Over the last six months, shares are up by 143%. Even on a year-to-date basis, Palantir stock boasts a gain of 19%.

My point here is that even though shares of Palantir have dropped considerably from all-time highs, the stock is still enjoying a fair bit of momentum. These dynamics become even more clear when benchmarking Palantir against its peers in the software arena.

PLTR PS Ratio data by YCharts

As the chart above illustrates, Palantir is the most expensive name in this cohort of growth software stocks by a mile. Even with heavy selling, the company's price-to-sales (P/S) ratio has expanded considerably over the last year.

While the stock is pricey compared to peers, I do see now as an interesting opportunity to buy shares of Palantir on a rare dip. While Palantir's price action could very well continue to exhibit some volatility in the short run, I think the long-term narrative remains strong.

The company has a number of strategic alliances that could bode well for long-term growth. Moreover, secular tailwinds fueling rising demand for AI enterprise software platforms represents another compelling catalyst for Palantir.

I think the most prudent strategy is to use dollar-cost averaging over a long period of time (i.e., years or decades) when it comes to Palantir stock.