Earlier this month, the Nasdaq Composite experienced a sell-off and fell into bear market territory over concerns related to global tariffs. Additionally, there are fears of a recession coming this year, which could inevitably slow down spending on artificial intelligence (AI), and technology as a whole.
Obviously, that's further bad news for the tech heavy index. But what about Palantir Technologies (PLTR 1.87%), the data analytics company which recently changed its listing to the Nasdaq exchange, and is now part of the Nasdaq Composite?
Could the stock be headed for trouble if the index stumbles back into a bear market, or could this be a safe holding given the high degree of government-related revenue the business generates?
NASDAQ: PLTR
Key Data Points
Can Palantir's government business provide it with stability?
Palantir's government revenue accounts for a big slice of its top line. Last year, the company generated $1.6 billion in revenue from government customers, versus $1.3 billion from commercial ones. And its growth rate was similar for both types of customers (28% for government and 29% for commercial).
The Trump administration has made efforts to reduce government spending, but that may not necessarily result in sharp reductions on defense. Last year, top Republicans said that a "generational investment" in defense was necessary to combat coordinated threats from multiple adversaries, including Iran, China, and Russia.
If there is a significant increase in defense spending, Palantir, which has partnered with government agencies on counterterrorism and other efforts, could be a significant benefactor. Palantir's AI-powered solutions have been opening up new opportunities for the data analytics company in recent years, and that could help result in continued strong growth with government customers for the foreseeable future, which can be particularly helpful if there's a slowdown on the commercial side.
However, investors may not be willing to tolerate any kind of slowdown in Palantir's business, given how expensive the stock is.
Palantir's valuation means expectations will likely remain high
In the past 12 months, shares of Palantir have skyrocketed more than 300%. And while the Nasdaq may be in negative territory as of Monday's close, down 13%, the tech stock is up more than 22% this year. But while it has outperformed the Nasdaq thus far, it could also be among the most vulnerable stocks on the exchange if there's a steeper sell-off to come in the markets, due to its valuation.
PLTR PE Ratio data by YCharts.
While Palantir's stock is profitable, the issue is that investors are paying a massive premium for the business. In 2024, its net income doubled from $210 million in the previous year to more than $462 million. But even with such significant growth, investors are paying for an egregious valuation of 487 times trailing 12-month earnings. Even based on just revenue, the stock looks expensive, trading at 79 times its trailing sales.
The big question is what happens when the company reports its latest earnings numbers, which are scheduled to come out on May 5. If the company trims its guidance or gives any hint of slowing growth, that could potentially cripple the stock; anything besides strong numbers and a rosy outlook could lead to a sell-off.
Palantir's stock could face heavy losses in a bear market
Palantir's stock fell after "Liberation Day" and the announcement of tariffs, suggesting that it may not be immune to concerns related to the overall economy. While investor sentiment has improved in recent days due to the pause on some announced tariffs, that may prove to be just a temporary reprieve.
The stock's ability to maintain a high valuation is going to depend largely on sentiment from retail investors, who have been allowing it to trade at a massive premium. And that will be tested when Palantir reports earnings next month. Despite the stock doing well this year, Palantir’s high valuation makes it a potentially risky Nasdaq holding during a bear market, exposing it to substantial downside.
