Palantir Technologies (PLTR) saw its stock plummet by 10% on Wednesday, with a significant drop occurring in the final hour of trading. The decline followed a report from The Washington Post revealing that the Trump administration is planning substantial cuts to the defense budget over the next five years.
Pentagon’s Budget Reduction Plans
According to the Post, Defense Secretary Pete Hegseth sent a memo to senior Pentagon and US military leaders, instructing them to plan for an 8% annual reduction in the defense budget for the next five years. These cuts could amount to tens of billions of dollars over the period. In the memo, Hegseth emphasized the need to eliminate unnecessary defense spending, reduce bureaucracy, and implement actionable reforms, including progress on the audit process.
Despite these significant reductions, certain areas, such as US border operations and munitions acquisitions, would reportedly be exempt from the cuts.
Palantir’s Role in Government Contracts
Palantir, known for developing AI software used in surveillance by the US government, generates a substantial portion of its revenue from government contracts. In its most recent earnings report, more than half of Palantir’s revenue came from the US Department of Defense and other government agencies, driven by growing defense spending.
The company has been expanding its footprint in the defense sector and is reportedly in talks with competitors like Anduril to form a consortium to bid for more US government contracts.
Performance Despite Decline
Despite the 10% drop on Wednesday, Palantir’s stock has had an impressive year so far in 2025, with a 48% increase year-to-date, making it the second-best performing stock in the S&P 500. Over the past year, Palantir has seen a remarkable rise of more than 350%.
As the company remains heavily reliant on defense contracts, future budget cuts could have significant implications for its business moving forward.
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