Shares of Palantir (PLTR -11.72%) fell on Friday. The company's stock had lost 10.6% as of 2:30 p.m. ET and as much as 14% earlier in the day. The drop comes as the S&P 500 and the Nasdaq Composite both fell by more than 5%.

The artificial intelligence (AI) software provider's stock is facing pressure from escalations in the ongoing trade war.

Palantir is caught in the cross fire

President Donald Trump's Wednesday announcement of sweeping new tariffs on countries across the globe has sent the market reeling. The tariffs, which include a 34% tax on Chinese imports, 20% on European Union goods, and a baseline 10% tax on all countries, are the most significant trade action since the 1930s.

Palantir was able to avoid much of the pain yesterday. Unlike chip stocks and much of the rest of tech, Palantir's business model is largely insulated from the direct impacts of tariffs. It is software-based and lacks an exposed supply chain of physical goods crossing borders.

However, today China responded with its own tariffs, levying a steep 34% on U.S. goods. The significant escalation is increasing fears of a recession. Even if Palantir's products aren't directly tariffed, a slowdown in the rest of the market could see companies tighten their wallets and its growth slowed.

That's something the company, or rather its stock, can't afford. Even after a 40% decline over the past few months, shares of Palantir are trading at a very high multiple. Its price-to-earnings ratio (P/E) is still above 400. That is absurdly high and requires perfection from the company. I think the uncertainty from trade tensions is highlighting to many investors just how vulnerable the stock is.