How Palantir Stock Could Fall To $40

Question: How would you feel if you owned Palantir Technologies stock (NASDAQ: PLTR) and it dropped by 50% or more in the coming months? It may sound extreme, but such a scenario has occurred before – and it could happen again. So far this year, Palantir’s stock has seen considerable volatility. The stock rose by over 60% since early January to over $120 per share by mid-February and has lost about 38% from these highs and currently trades at levels of about $80 per share. Palantir has benefited from the surging interest in generative AI, the re-election of Donald Trump to the U.S. Presidency, and the strong earnings in recent quarters. However, the broader markets are seeing a big selloff, driven by growing concerns of a recession in the U.S. following President Donald Trump’s tariffs on key trading partners. Palantir’s stock could be particularly vulnerable to a large correction, given its rich valuation.

Image by Tumisu from Pixabay

Here’s the point: during an economic downturn, PLTR stock could suffer significant losses. Recent evidence from 2022 shows that PLTR stock lost over 70% of its value within just a few quarters. Now, Palantir’s stock is already down from levels of $120 to $80 in the matter of a few weeks. So, could Palantir stock continue its decline and fall to levels of about $40 if a similar scenario were to occur? Of course, individual stocks tend to be more volatile than a diversified portfolio – so if you seek growth with less volatility than a single stock, consider the High-Quality portfolio, which has outperformed the S&P 500 and delivered returns exceeding 91% since its inception.

Why Is It Relevant Now?

Palantir’s revenue growth faces risks. About 55% of 2024 revenue came from government contracts, which are often uncertain and lumpy, making them less predictable. Moreover, the new Trump Administration has been working to ease geopolitical tensions, including mediating between Ukraine and Russia and addressing the Israel-Palestine conflict. While these efforts are a net positive for global stability, they could dampen demand for Palantir’s software and services, which typically thrive during times of geopolitical uncertainty. Palantir’s long-term growth depends on the commercial market, which the company caters to via its Foundry platform, which targets customers in industries including manufacturing, retail, and healthcare. While the commercial business has seen traction – with U.S. commercial sales rising 64% in the most recent quarter compared to 45% growth in U.S. government sales – there could be headwinds. The company’s ticket sizes are typically large, and implementation is also complex and expensive, meaning that the product may not scale as well with small and medium-sized firms. This could impact growth going forward.

Palantir’s margins could come under pressure. While margins have expanded in recent years, rising from about 26% in 2023 to nearly 35% in 2024, this trend may not continue. The company has kept marketing expenses in check due to its highly customized products and strong customer loyalty. Palantir’s engineers work closely with clients to tailor solutions to specific needs. However, if Palantir adjusts its strategy to target a broader customer base, costs could rise, impacting margins. Additionally, competition from diversified tech giants such as Microsoft, who can cross-sell solutions to existing customers who use their enterprise tools, also poses another risk to Palantir’s pricing power and profitability.

How resilient is PLTR stock during a downturn?

PLTR stock has seen an impact that was worse than the benchmark S&P 500 index during some of the recent downturns. While investors have their fingers crossed for a soft landing by the U.S. economy, how bad can things get if there is another recession? Our dashboard How Low Can Stocks Go During A Market Crash captures how key stocks fared during and after the last six market crashes.

Inflation Shock (2022)

• PLTR stock fell 67.6% from a high of $18.53 on 3 January 2022 to $6.00 on 27 December 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-crisis peak by 31 July 2023
• Since then, the stock has increased to a high of $124.62 on 18 February 2025 and currently trades at around $78

That being said, stock markets are often myopic and tend to extrapolate short-term trends for the long run. In Palantir’s case, markets expect the AI frenzy to keep going, with Palantir continuing to notch up shares in the commercial side of the business, diversifying away from its core government business. However, there are considerable risks here.

Valuation

Palantir Technologies’ Revenues have grown considerably over recent years, rising at an average rate of 23.0% over the last 3 years (vs. an increase of 6.9% for S&P 500). However, with the stock trading at a very lofty 48x consensus FY’25 revenue and about 140x FY’25 earnings, Palantir could be more vulnerable to the broader economic picture. High multiple growth stocks often falter during downturns as slower earnings growth typically translates into considerable compression in P/E multiples. Moreover, investors typically rotate into more defensive sectors amid heightened risk aversion.

Given this slowdown in growth and broader economic uncertainties, ask yourself this question: Do you intend to hold your PLTR stock now, or will you panic and sell if it begins to drop to $50, $40, or even lower levels? Holding onto a declining stock is never easy. Trefis collaborates with Empirical Asset Management—a Boston area wealth manager—whose asset allocation strategies yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Empirical has integrated the Trefis HQ Portfolio in this asset allocation framework to provide clients with better returns and reduced risk compared to the benchmark index; offering a less volatile experience, as reflected in the HQ Portfolio performance metrics.

[1] Returns as of 3/12/2025
[2] Cumulative total returns since the end of 2016