Palantir Technologies Inc. (PLTR) is having a rough week. After a stellar post-earnings rally in August, the stock is now sliding, and investors are trying to figure out what's behind the pullback. One possible culprit? Google's latest AI offerings aimed squarely at the government sector.
On Wednesday, Alphabet Inc. (GOOGL) (GOOG) launched Gemini 3.8 Flash and Flash Cyber as part of its Fairwind Program, designed for government agencies and cybersecurity partners. Michael Monaghan, a portfolio manager at Founders ETFs, told MarketWatch that some investors see this as a direct threat to Palantir's government business. That's a big deal because government contracts are a huge chunk of Palantir's revenue.
Palantir's stock had been on a tear, recovering from a 52-week low of $106.37 in late June after strong second-quarter earnings in August. But the stock has since given back some gains, falling 5.56% over the past week to dip below $170. On Wednesday alone, it dropped 5.81% to close at $169.46.
But is Google's move really the main issue? Monaghan suggests investors might be questioning whether Palantir can keep up its growth trajectory. "The company will need to continue 'earning' its valuation by outperforming expectations," he said. He also pointed out that rising bond yields could put pressure on high-multiple stocks like Palantir, which trade on future growth expectations.
This isn't a new concern. Last month, Jefferies analyst Brent Thill expressed confidence in Palantir's fundamentals but warned that its high valuation leaves little room for slower growth or any missteps in execution. In other words, Palantir has to keep knocking it out of the park, or investors will start to get nervous.
Palantir Beats Estimates, Faces Valuation Risks
Palantir's recent earnings were nothing short of impressive. In early August, the company reported second-quarter revenue of $1.94 billion, beating analyst estimates of $1.80 billion. Adjusted earnings came in at 41 cents per share, also topping expectations of 35 cents per share.
CEO Alex Karp has been bullish, citing surging demand for "AI sovereignty" as a major opportunity. He described the quarter as "otherworldly," with U.S. commercial revenue up 149%, total revenue rising 93%, and its Rule of 40 score hitting 155%. For those unfamiliar, the Rule of 40 is a metric that combines growth and profitability, and a score above 40 is generally considered good. Palantir is blowing past that.
But not everyone is buying the hype. Cathie Wood's Ark Invest sold a significant number of Palantir shares in late August. The firm offloaded a total of 139,456 shares across its ARK Blockchain & Fintech Innovation ETF (ARKF), ARK Innovation ETF (ARKK), and ARK Next Generation Internet ETF (ARKW). That's a notable move from a firm known for betting big on disruptive tech.
On a more positive note, Palantir announced on Wednesday that Peter Zaffino, former CEO and Executive Chairman of AIG, will join the company as Global Head of Financial Services on Jan. 15, 2027. Zaffino will oversee growth across banking, insurance, asset management, and private equity. It's a high-profile hire that signals Palantir's ambitions to expand beyond its traditional government and defense base.
So, what should investors make of all this? Palantir is a company with incredible growth, but it's also trading at a valuation that leaves no room for error. The stock has surged 34.87% over the past month, according to market data, and while the fundamentals are strong, any hint of competition or macroeconomic headwinds could trigger a sell-off.
Google's entry into the government AI space is worth watching, but it's not necessarily a death knell for Palantir. Palantir has deep relationships with government agencies and a track record of delivering complex AI solutions. Still, the market is clearly jittery, and the stock's recent slide suggests investors are taking the threat seriously.
For now, Palantir remains a high-growth, high-risk play. The company's ability to sustain its momentum will depend on continued execution and its success in fending off new competitors like Google. As Monaghan noted, Palantir will need to keep earning its valuation, quarter after quarter.
