Shares of Palantir Technologies (PLTR 4.12%) dropped on Thursday, falling 5.9% as of 2:48 p.m. ET. The move down comes as the S&P 500 lost 0.2% and the Nasdaq Composite fell 0.4%.

A report last week from The New York Times asserted, among other things, that Palantir, which leverages artificial intelligence (AI) to analyze massive data sets and help clients make better decisions, has gained incredible access to data across the federal government, which could give President Donald Trump "untold surveillance power."

Karp says there is no surveillance

Ethical concerns notwithstanding, investors took the report as further proof that Palantir's bottom line will continue to grow as it becomes further embedded in the operation of the federal government. However, in an interview with CNBC on Thursday, CEO Alex Karp was adamant that his company is "not surveilling Americans," leading to the stock's decline today.

A person looks straight ahead while digital metrics appear around one eye.

Image source: Getty Images.

Even if what Karp says is true, however, the company is still deeply embedded in the federal government, and that relationship appears to be growing.

Beware Palantir's valuation

Despite this increasingly cozy relationship, I still think this stock is just too expensive. I don't doubt Palantir's ability to win new government contracts, but I don't think it can grow enough to justify its incredible valuation. Its price-to-earnings ratio (P/E) of 560 is wildly high and, in my opinion, divorced from reality. There is no doubt that Palantir, by and large, is executing at a very high level, but a valuation this high means it must execute perfectly.