Why Palantir Stock Is Sinking Today

Key Points

• Palantir is getting hit with a big valuation pullback today, and its stock ranks as one of the S&P 500's worst daily performers.

• Signs of a potential resolution to the Russia-Ukraine war and improving relations between U.S. and China seem to be weighing on the stock.

• Macroeconomic risk factors may also be causing investors to sell Palantir stock after incredible gains this year.

• 10 stocks we like better than Palantir Technologies ›

Palantir (NASDAQ: PLTR) stock is under pressure and getting hit with substantial sell-offs in Tuesday's trading. The artificial intelligence (AI) leader's share price was down 5.6% as of noon ET. At the same point in the day's trading, the S&P 500 was down 0.4%, and the Nasdaq Composite was down 1%.

While there do not appear to be any immediate, business-specific developments weighing on the company's stock today, there are geopolitical and macroeconomic dynamics that could be factoring into the valuation pullback. Investors taking profits on the heels of an incredible rally this year is likely also a factor in today's sell-off. Even with a significant pullback today, the stock is still up 117% year to date.

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Palantir stock sinks amid geopolitical developments

Palantir has seen incredible valuation gains as investors have flocked to AI companies with exposure to the defense industry. Developments that suggest stabilization or relational improvements along geopolitical lines can sometimes cause pullbacks for the company's share price.

President Donald Trump recently made comments expressing optimism about a resolution to the war between Russia and Ukraine. President Trump has recently been pushing for a meeting between Ukrainian President Volodymyr Zelenskyy and Russian President Vladimir Putin, and President Zelenskyy is reportedly open to such a meeting.

Additionally, a report published by Bloomberg announced that Chinese exports of rare-earth minerals have returned to their highest levels since January. Tensions between the U.S. and China have played a significant role in Palantir's valuation run-up this year, and signs of improving relations could continue to dent Palantir's heavily growth-dependent valuation.

Macroeconomic dynamics are likely also a factor

Trading at roughly 253 times this year's expected earnings and 90 times expected sales, Palantir has one of the most growth-dependent valuations of any well-established company on the market. As a result, the company is at risk of seeing big sell-offs in the face of indications that macroeconomic conditions could be weakening.

Palantir stock has seen sell-offs on the heels of the July Producer Price Index report from the Bureau of Labor Statistics, which showed levels of inflation that were much higher than anticipated. Some investors are concerned that inflation faced by producers and wholesalers will wind up filtering through to the consumer side of the economy and result in broader inflation that will make it more difficult for the Federal Reserve to cut interest rates. If that's the case, there's a significant risk that Palantir's bullish momentum this year could be hit with bigger setbacks.

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Keith Noonan 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.