Palantir Stock Downside Case: $85?

Palantir Technologies stock (NASDAQ: PLTR) has had a remarkable run this year, rising more than 2.3x since early January to trade at around $175 per share. The stock has been buoyed by surging interest in generative AI software and a wave of new government contracts following the re-election of Donald Trump as U.S. President. Earnings momentum has also been strong: Palantir recently delivered a beat-and-raise quarter, with Q3 revenue growing to $1.18 billion, marking a 63% year-over-year. The company raised its full-year revenue guidance to a midpoint of about $4.4 billion, marking a 53% increase from 2024.

Image by Pete Linforth from Pixabay

To be clear. Palantir’s execution has been solid. Revenue growth over the most recent quarter improved to 63%, up from 30% in the year-ago quarter, while adjusted operating margins stood at 51%, up from 38% in the year-ago quarter. But that strength is exactly why the risk is also underappreciated. When expectations are sky-high, the fall can be pretty steep.

Broader markets have rallied in recent months, but macroeconomic challenges remain, including moderate growth, cooling labor market conditions, persistent inflation pressures and tariffs on key trading partners. Palantir’s high valuation – roughly 240x forward earnings – makes it particularly vulnerable to a sharp pullback. Could the stock fall 50% to $85 per share or even lower? There’s a real possibility. Palantir has seen steeper drawdowns in the past, and those declines could easily repeat if sentiment takes a turn for the worse.

The question isn’t necessarily where PLTR stock goes, but how your portfolio is positioned. See how Trefis High Quality Portfolio and our Boston-based, wealth management partner prepare you.

Why Is It Relevant Now?

Palantir’s revenue growth risks

Palantir has posted strong growth, particularly in its U.S. government segment, which saw revenue rise 52% year-over-year to $486 million over the last quarter. However, this momentum comes with risks. Government contracts tend to be lumpy and unpredictable, making future growth harder to forecast. Moreover, the new Trump administration is pursuing a strategy of de-escalating global tensions—including efforts to mediate between Ukraine and Russia and address the Israel-Palestine conflict.

While these initiatives support global stability, they could reduce demand for Palantir’s software, which often sees higher uptake during periods of geopolitical upheavals. With a heavy reliance on federal contracts, Palantir remains exposed to political risk as well. Shifts in government priorities, budget cuts, or contract losses could meaningfully impact its revenue trajectory and weigh on the stock.

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 more than doubling by 121% in the most recent quarter  – there could be challenges in the longer term. 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. Scaling Foundry beyond large enterprises could require a different go-to-market approach – one that Palantir may not be built for today. This could impact growth in the longer-run.

How Resilient is PLTR Stock During Downturns?

During periods of economic stress, Palantir has underperformed broader markets by a wide margin. Consider 2022, when surging inflation deflated high flying tech stocks – Palantir stock lost over 70% of its value within a few quarters – falling from $18.53 in January to $6.00 by December. By comparison, the S&P 500 declined about 25% over the same period. To its credit, Palantir fully recovered to its pre-crisis peak by July 2023, and since then, the stock has surged to around all time highs.

But history shows that when the sentiment shifts, PLTR stock can crater. 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.

Palantir’s High Valuation

Palantir Technologies’ Revenues have grown at an average annual rate of 30% over the past three years, well above the S&P 500’s 5.2% growth. But even that impressive performance doesn’t justify the stock’s current valuation. Palantir trades at over 90x FY’25 revenue and roughly 240x FY’25 earnings – multiples that scarcely leave room for error. High-multiple growth stocks often falter during economic slowdowns, as lower earnings growth leads to sharp contractions in valuation multiples. In downturns, markets rotate toward safer value stocks, and Palantir clearly does not fit that mold. If the stock sees a correction near 2022 levels, it could fall to levels of $85 per share or even lower.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.