Palantir Stock Falls Hard to Start 2026. Here's What Investors Need to Know

Palantir Technologies (NASDAQ: PLTR) has been one of investors' favorite artificial intelligence (AI) stocks during this tech boom -- the stock has soared 2,400% over the past three years. This is as Palantir has reported outstanding revenue growth and spoken of ongoing high demand for its software platforms.

But at the start of this new year, Palantir wasn't on investors' buy lists. On the first day of trading, the stock fell hard, losing more than 5%. Now, here's what you need to know about this much-talked-about AI stock.

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A drop and then a rebound

First, it's important to note that Palantir has rebounded since that tough start to the year. The stock is now little changed for 2026, and that's after a 135% increase last year.

There's a good reason for this positive momentum. Palantir has built up a solid business over more than 20 years, and today, what it has to offer is exactly what both government and commercial customers need: a way to immediately apply AI to their operations. This company's AI-driven software, Artificial Intelligence Platform (AIP), helps customers gather their data, analyze it, and make use of it in ways that may be game-changing.

For example, AIP could help make fast and smart decisions on a battlefield, and it may help a company organize workflow or predict the maintenance of certain machinery. The possibilities are vast. And all of this gives customers the opportunity to gain efficiency, lower costs, and even become more innovative.

Explosive growth

This has translated into explosive growth for Palantir, particularly in the commercial business -- a unit that could become a huge revenue driver for the company. Just a few years ago, Palantir had a handful of U.S. commercial customers, and today it has hundreds. Meanwhile, contract value is surging to records. In the recent quarter, Palantir closed U.S. commercial total contract value of $1.3 billion.

Palantir is also growing profit, and the company raised full-year guidance, including guidance for revenue and adjusted income from operations.

All of this has driven investors to pile into the stock -- but the stock's high valuation, at 175x forward earnings estimates, has been a concern. The fear is that this level may not be sustainable, so it's not surprising to see some investors locking in profits. And this is very likely what drove the stock's drop at the start of the year.

Still, Palantir's earnings have been solid, and the company continues to speak of high demand -- its software appeals to customers eager to get in on AI. This positions Palantir well for the next stages of the AI boom, making it a stock that could excel over the long term.

Adria Cimino 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.