Why Palantir Technologies Stock Slumped Today
Key Points
Palantir provides AI services to the U.S. Immigration and Customs Enforcement (ICE) agency.
Controversy has followed ICE in recent weeks, and is weighing on Palantir's stock.
Any potential derogatory news can move the stock thanks to its egregious valuation.
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Palantir Technologies (NASDAQ: PLTR) stock tumbled on Thursday, falling as much as 6.5%. As of 3:44 p.m. ET, the stock was still down 4%.
The catalyst that weighed on the artificial intelligence (AI) software and data mining specialist was a news report linking Palantir to controversy surrounding the U.S. Immigration and Customs Enforcement (ICE) agency.
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ICE agents have been using tools supplied by Palantir Technologies to sift through tips submitted by the public in the agency's immigration enforcement operations, according to a widely circulated news report.
The Department of Homeland Security (DHS) released a list of use cases for various AI tools this week. It revealed that Palantir's AI was instrumental in the AI-Enhanced ICE Tip Processing service. This tool helps sort through tips submitted to ICE, surfacing the most urgent information while providing a "high-level summary of the tip."
Palantir has been providing services to DHS for 14 years, so the news isn't new. However, a wave of controversy has followed ICE in recent weeks, and negative public sentiment surrounding the federal agency is one of the things weighing on Palantir stock.
Palantir has also been caught up in a broad AI-related sell-off, caused by fears that AI adoption may be slowing, even as companies ramp up spending to capitalize on the opportunity. The stock is down more than 27% from its peak, as investors try to balance the risks and the long-term opportunities represented by AI.
Furthermore, Palantir is among the most expensive stocks on the market, currently selling for 350 times earnings -- even after its recent fall from grace. Looking ahead, the stock is trading at 105 times next year's expected earnings, a still lofty valuation.
With a multiple of that magnitude, the stock will be extremely volatile and can tumble on any bit of bad news.
Don't get me wrong: I'm a tied-in-the-wool Palantir bull, but investors should be cautious given the stock's current valuation.
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Danny Vena, CPA has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.
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