Palantir Stock Drops 10% Amid Budget Cut Fears: Volatility and Valuation Concerns Ahead

Technical Analysis

Palantir Technologies Inc. (NASDAQ: PLTR) experienced a significant drop of 10.08% with its last closing price at $112.06, following reports of potential Pentagon budget cuts. The stock's volume surged to 135.28 million, markedly higher than its average volume of 83.86 million, indicating heightened trading activity and volatility. With a current RSI14 of 73, Palantir is entering overbought territory, suggesting a potential price correction.

The stock is trading well above its 50-day moving average of $82.79 and its 200-day moving average of $46.63, signaling a bullish trend over extended periods. However, the recent sharp decline brought the price close to its immediate support level at $111.28, with resistance looming at $112.62.

Fundamental Analysis

Despite the recent downturn, Palantir has shown remarkable price appreciation over the year, hitting a year high of $125.41 from a year low of $20.33. Currently, the stock has a market cap of $262.82 billion, reflecting strong market interest. However, significant valuation concerns are present, exemplified by a high P/E ratio of 589.79, which could pose risks if growth expectations are not met.

Earnings per share (EPS) stand at $0.19, with the next earnings announcement scheduled for May 5, 2025. The consensus price target median is set at $75, well below the current price, hinting at possible overvaluation concerns. Furthermore, a recent discounted cash flow (DCF) value of 3.53 suggests deeply inflated market prices relative to the company's longer-term cash-generating potential.

Intrinsic Value and Long-term Investment Potential

Palantir's stock price is significantly outpacing its intrinsic value calculations. Given the company’s modest EPS and high P/E ratio, expectations for future earnings are exceptionally optimistic. Yet, the potential impact of defense budget cuts could adversely affect revenue streams, particularly from government contracts. The discrepancy between market price and intrinsic value suggests that the stock could be subject to corrections, especially if growth rates falter or if external market conditions change.

Predictions for Next Trading Day and Upcoming Week

Given the immediate market reaction to the Pentagon budget cuts, Palantir’s stock may continue to experience heightened volatility. The proximity of the trading price to the support level suggests caution, with potential for further downside testing. Over the coming week, unless there is a positive catalyst or stabilization of external threats (such as budget cuts), further declines or consolidation at lower levels could occur.

Overall Evaluation

With heightened volatility, an overextended valuation, and looming uncertainties surrounding future government contracts, Palantir can be considered a ‘Hold’ candidate. This conclusion aligns with the current analyst consensus but is contingent on the company's ability to navigate current challenges and successfully leverage new growth opportunities. Upcoming earnings results will be critical to validating high market valuations and justifying retention or re-assessment of the stock in portfolios.