Palantir Stock Declines Amid Reports of Trump Administration's Planned Defense Budget Cuts

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Shares Drop Significantly as Pentagon Faces Potential Financial Reductions / Reuters /Nathan Howard

Palantir Technologies Inc. (PLTR) saw a notable decrease in its stock price after a report emerged detailing the Trump administration's directive to the Pentagon regarding substantial cuts to the defense budget. Following this news, shares of Palantir plummeted by 10% on Wednesday, with a rapid decline observed in the final trading hour. The negative momentum continued into Thursday morning, where the stock was down more than 5% in early trading.

According to a report from The Washington Post, Defense Secretary Pete Hegseth has instructed senior Pentagon and military officials to prepare for an annual reduction of 8% in the defense budget over the next five years. This significant cut could equate to tens of billions of dollars in reduced spending. In a memo revealed by the Post, Hegseth emphasized a commitment to effectively resource the military while eliminating unnecessary expenditures, cutting through excessive bureaucracy, and implementing meaningful reforms, including advancements in auditing processes.

The memo further outlined that approximately 17 categories of defense spending would be exempt from these cuts, including operations at the U.S. border and munitions procurement. This strategic decision aims to streamline the budget while still ensuring critical areas remain funded.

Palantir, which specializes in AI software utilized for surveillance and data analysis by U.S. government agencies, has a significant portion of its revenue stemming from government contracts. In its latest quarterly earnings report, over half of the company's revenue was generated from contracts with the Department of Defense, reflecting an increase in government spending on advanced technology solutions.

Additionally, The Financial Times reported that Palantir is exploring collaborations with competitors, such as Anduril, to form a consortium capable of bidding for U.S. government contracts, indicating a proactive approach to securing future revenue streams amid changing budget dynamics.

Despite the recent downturn, Palantir's stock performance has been impressive overall in 2025, with a year-to-date increase of more than 48%, making it the second-best performing stock in the S&P 500 index. Over the past year, the stock has appreciated by over 350%, showcasing the company's resilience and strong market position.

As investors monitor the developments regarding defense spending and Palantir's potential impact, the company's ability to adapt and secure contracts in a changing fiscal landscape will be crucial for its ongoing success.

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