Why Palantir Stock Plummeted Today

Shares of Palantir Technologies (NASDAQ: PLTR) fell on Wednesday. The company's stock lost 10.1% as of market close and lost as much as 12.9% earlier in the day. The drop comes as the S&P 500 (SNPINDEX: ^GSPC) gained 0.2%, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) was flat.

Palantir's stock was hit hard by news that the Trump administration intends to cut defense spending, as well as news that CEO Alex Karp was selling $1.1 billion in stock.

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Pentagon budget cuts are looming

The Trump administration has ordered the Pentagon to cut its budget by 8% each year for the next five years, according to a report by the Washington Post. Defense Secretary Pete Hegseth has ordered senior leadership to craft a plan to do so by Feb. 24. The order contains certain spending categories off-limits for reductions, like border security and missile defense.

The move comes just days after President Trump stated that he intended to sit down with leadership from China and Russia to reach an agreement to cut defense spending in half.

Palantir, an artificial intelligence (AI)-driven intelligence company, relies on government contracts for roughly half of its revenue. The company has contracts across the Department of Defense branches of the armed services. Indeed, 8% cuts each year over five years are very large, and Palantir's contracts could easily find themselves in the crosshairs.

CEO sells shares

It was also revealed today that CEO Alex Karp had canceled his previous trading plan, replacing it with one that would allow him to sell nearly 10 million shares -- worth roughly $1.1 billion today -- over the next eight months. Although his previous plan allowed him to sell nearly five times as many shares, the timing of the news may have made today's dip worse.

While investors may be tempted to buy the dip, valuation continues to be an issue with this stock.

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Johnny Rice 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.