Palantir is soaring while its tech peers are sinking. Here’s why
Alex Karp, chief executive officer of Palantir Technologies Inc., speaks during the AIPCon conference in Palo Alto, California, US, on March 13, 2025.
David Paul Morris | Bloomberg | Getty Images
Tech stocks have struggled in 2025, as recession and trade war fears sap investor appetite for riskier assets.
Palantir is the exception.
Against a volatile market backdrop, the software maker’s stock has gained 45% and is the best performer among companies valued at $5 billion or more, according to FactSet. The closest tech names are VeriSign, up 33%, Okta, up 30%, Robinhood, up 29%, and Uber, up 29%.
President Donald Trump‘s frenzy of government department overhauls is partially to thank for the pop.
“When you think about macroeconomic concerns, you as a company need to be more efficient, and this is where Palantir thrives,” said Bank of America analyst Mariana Pérez Mora.
Palantir has set itself apart in the software world for its artificial-intelligence-enabled tools, gaining recognition for its defense and software contracts with key U.S. government agencies, including the military. In the fourth quarter, its government revenues jumped 45% year-over-year to $343 million.
Companies have faced immense volatility in 2025 as tariffs threaten to jeopardize global supply chains and halt day-to-day manufacturing operations by hiking costs. Those fears have brought the broad market index down about 7% this year, while the tech-heavy Nasdaq Composite has slumped 11%.
Tech’s megacap companies — Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta and Tesla — are all down between 7% and 31% so far this year.
At the same time, the Trump administration has clamped down on government spending, giving Tesla CEO Elon Musk‘s Department of Government Efficiency freedom to slash public sector costs. Some administration officials have touted shifting dollars from consulting contracts to commercial software providers like Palantir, said William Blair analyst Louie DiPalma.
“Palantir’s business model is highly aligned with the priorities of the Trump administration in terms of increasing agility and being very quick to market,” he said.
That’s put Palantir in the league with major contractors such as Lockheed Martin and Northrop Grumman, which have outperformed in this year’s downdraft. Many companies in the space are also looking to partner with the firm and tend to flock to defense during recessionary times, DiPalma said.
Palantir vs. the Nasdaq Composite
CEO Alex Karp has also been a vocal supporter of American innovation and the company’s central role in helping prop up what he called the “single best tech scene in the world” during an interview with CNBC earlier this year. Karp also told CNBC that the U.S. needs an “all-country effort” to compete against emerging adversaries.
But the ride for Palantir has been far from smooth, and shares have been susceptible to volatile swings. Shares sold off nearly 14% during the week that Trump first announced tariffs. Shares rocketed 22% one day in February on strong earnings.
Its inclusion in more passive and quant funds over the years and the growing attention of retail traders has added to that turbulence, DiPalma said. Last year, the company joined both the S&P and Nasdaq. Palantir trades at one of the highest price-to-earnings multiples in software and last traded at 185 times earnings over the next twelve months. That puts a steep bar on the stock.
“There really is no margin for error,” he said.
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Technology
Blip, dip, pullback or the beginning of the end? Global investors weigh in on stock sell-off
Global investor sentiment for artificial intelligence remains buoyant, despite on the ongoing stock sell-off.
European and Asia markets have seen days of consecutive losses, tracking their U.S. counterparts lower as pressures mount on AI-related stocks and their valuations. The pan-European Stoxx 600 on Tuesday notched its lowest level in a month, with major bourses opening mixed on Wednesday, while Asia-Pacific markets fell.
Stateside, stock futures were little changed overnight after major U.S. indexes extended their losses. AI-related stocks such as Nvidia, Palantir, and Microsoft are among those feeling the pressure.
“We do think this is an AI specific pullback. We don’t think this is the beginning of the bear market,” Emma Wall, head of investment analysis at Hargreaves Lansdown, told CNBC’s “Squawk Box Europe.”
When considering whether this is the “beginning of the end” or a moment marking “the big pullback,” Wall argued that while we are overdue a “major global market correction,” the current downturn is yet to bring this shift.
Many markets outside of the U.S. — particularly in Europe and the U.K. — already reflect much of the negative news, she said, adding that she sees the pressure as sector specific.
It is, however, an opportunity to rebalance portfolios, as “even taking into consideration this week, most people have had a really good run, even in AI stocks,” Wall said.
Mike Wilson, chief U.S. equity strategist and chief investment officer at Morgan Stanley, echoed this sentiment. He said markets have been in a correction for the past six weeks but “it’s not the end of the AI cycle.”
All eyes are on Nvidia, considered the bellwether of AI, as it’s due to post third-quarter earnings after the closing bell on Wednesday.
“Whatever happens tonight is, if it is a blip, is a pullback, it’s probably a dip to be bought. But I think we are in the midst of somewhat of a correction right now,” Wilson told CNBC’s “Inside India,” adding that he thinks it’s the middle-inning.
“The credit part of this spending is just beginning, meaning we’re just starting to raise money in the credit markets. It’s not like that money is going to sit there and they’re not going to spend it, which means there’s probably time on the clock with these intermittent kind of pullbacks,” he added.
Companies and investors are engaged in a delicate dance.
On one side, AI labs and their partners are making big promises and aggressive plays, according to Jason Thomas, head of global research and investment strategy at Carlyle. “But it’s not incumbent upon investors to believe them,” he told CNBC’s Julianna Tatelbaum, from the firm’s annual conference.
“Investors, of course, have to ensure that they are getting compensated for the risk that things don’t work out quite as planned, and I think that there’s a sense that perhaps there’s been some assets in the space that have been priced to best case scenarios. So I think that that’s the reassessment that’s going on right now,” he said.
Hyperscalers’ rising capex
The sell-off comes as the pace of debt dealmaking picks up, fueling speculation that it may have unsettled investors, many of whom have remained bullish on AI as long as companies post sound earnings. Google-owner Alphabet and Meta have issued bonds, for example.
“It’s not a problem, as long as the funding markets are there, meaning they’re raising the debt,” Wilson added. “I mean, there’s investors lined up,” he said.
It does however, become a problem when this is no longer the case, but “we haven’t seen that yet,” he said.
AI has fundamentally changed the strategy for many Big Tech firms, particularly when it comes to U.S. hyperscalers, which have morphed into capex-heavy companies from once asset-light businesses. Global investors are now assessing this new dynamic. Bank of America‘s latest Global Fund Managers Survey found that, for the first time in two decades, fund managers are concerned about hyperscalers “overinvesting.“
“[Hyperscalers] traded at very high price-to-book ratios, which made a lot of sense. You don’t value a money-printing machine based on the cost of the paper or based on the cost of the printing press. And that’s essentially what they were, these massive money printing machines where most of their assets were intangible, proprietary technology, the digital platforms,” said Carlyle’s Thomas.
“Now they’ve actually started to invest so much that 70% of their cash flow is being consumed by capital spending and, if you look at their book value now, 70% actually consists of property, plant and equipment, largely data centers. That’s a four-fold increase from a decade ago,” he added.
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