Palantir Technologies' stock (NASDAQ: PLTR) is clinging on to a positive YTD, 1.58% to the good after a 10% decline in trading yesterday has brought the price back below $80. The level, previously acting as resistance had offered up some support, before also giving way as PLTR looks to start today at $77.20. Despite pulling back more than 38% in less than 1 month, Palantir's stock remains more than 200% up over the past 12 months, leaving holders wondering what comes next.
The company known for its AI-driven software solutions, propelled in part by U.S DoD contracts has experienced substantial growth since its inception.
One contributing factor to the recent stock retreat is the United States Department of Defense's plan to cut approximately $50 billion, or 8%, from certain programs. This move aims to reallocate funds toward higher priority defense programs. Given that the U.S. government accounts for more than 40% of Palantir's total revenue, such budget cuts pose a significant concern for investors. Nothing has been said of reductions in contracts for the firm, yet markets are looking to price in some of the downside risk that may be on the horizon.
Despite perceived threats to Government contracts (material or otherwise), Palantir's commercial sector shows promising growth. The company's total contract value reached over $800 million in the latest quarter, marking a 134% year-over-year increase. Moreover, Palantir's commercial customer base in the U.S. has grown significantly, from 14 customers four years ago to 382 today.
The loss of the $80 level may prove to be a mere blip in a broader growth story, however with markets seemingly intent in taking some of the risk off the table, companies that have been as successful as Palantir in commanding high multiples are those that bear the brunt. To the downside, we would be watching $65 as a major level, with this previously acting as support during January's pullback. For the bulls, recapturing $80 would be a good start.
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