Palantir Technologies (NASDAQ: PLTR) was one of the hottest artificial intelligence (AI) stocks in 2024 but has seen heavy selling pressure alongside its AI peers so far in 2025. While the prevailing fear driving the markets lower right now is centered around the effects of tariffs and a potential trade war, another initiative also affects government spending: the Department of Government Efficiency (DOGE), headed by Elon Musk.
This initiative has set out to find wasteful government spending and in particularly audited the number of software licenses available versus the number of users actually using the software. While Palantir’s software hasn’t popped up in any of these reports yet, it’s a company to watch because it derives 40% of its revenue from U.S. government-related sources.
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So, should investors be worried about the stock with a DOGE cut potentially looming?
Palantir is dependent on U.S. government spending
Palantir makes AI-powered data analytics software that gives decision-makers the most up-to-date information possible at any given time. And its AIP (Artificial Intelligence Platform) allows users to create AI agents that can make decisions on their behalf.
The company started off as a provider of software designed specifically for government use. After having success there, it expanded to the commercial side, which opened up a huge opportunity. But the government is still the company’s largest and single most important client.
In the fourth quarter, revenue rose to $828 million, with $343 million of that coming from the U.S. government. Furthermore, government revenue grew 45% year over year in the quarter, indicating that there is still massive demand for its AI software from that important customer.
Considering that DOGE’s stated focus is to root out wasteful spending and modernize government infrastructure, Palantir seems like the last place to cut spending. Its AI software is too important to be cut, so I doubt you’ll see any weakness from DOGE’s efforts. But it may see some pressure in general as President Donald Trump tries to reduce spending. Regardless, I don’t think this will greatly affect the company since the AI revolution is ongoing.
With the stock down around 40% from its all-time highs, is it worth buying at this price?
The stock looks very expensive despite the drawdown
Although the company looks primed to continue growing rapidly, there are some considerations for investors. Chief among them is valuation: Although the stock sold off heavily, it’s still incredibly expensive.
PLTR PS ratio data by YCharts. PS = price to sales; PE = price to earnings.
A price tag of 67 times sales is unbelievably expensive, and it’s hard to justify, even with the company’s strong growth. And 140 times forward earnings is also very pricey — I’m not sure Palantir’s growth is fast enough to justify it.
If it maintain its 36% revenue hike that it had in the fourth quarter over the next five years (Wall Street analysts expect 32% and 26% growth in 2025 and 2026, respectively) with a profit margin of 30%, it would still look overvalued.
If both of those five-year projections came true, it would trade at 14 times sales and 46 times forward earnings. Those are more reasonable prices for Palantir, but they would require the stock price not to move from today’s level until five years from now. This indicates that there is around five years of growth already baked into the price. So Palantir investors don’t have to fear DOGE, they have to fear the market’s already high opinion of the stock.
As a result, I’m not interested in Palantir Technologies right now since there are too many other great bargains out there that don’t have an unreasonable valuation.
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.