Why Palantir Stock Is Sinking Today

Palantir (NASDAQ: PLTR) stock is seeing another valuation pullback in Wednesday's trading. The artificial intelligence (AI) software pioneer's share price was down 4.3% as of 12:45 p.m. ET. At the same point in the day's trading, the S&P 500 was down 0.1%, and the Nasdaq Composite had fallen 0.6%. The stock had been off as much as 5.5% earlier in the day.

Some top artificial intelligence stocks are getting hit with another round of sell-offs today as investors debate how to value companies in the space. Palantir may also be seeing selling momentum driven by recent wins for another defense AI stock.

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Palantir slips amid valuation concerns and wins for another AI player

Palantir has long been a battleground stock, and long-term bulls have managed to score huge wins with their bets. On the other hand, concerns that the company's valuation may be in a bubble have recently intensified -- and the stock is now down 12% from the lifetime high that it reached earlier this year. News that Michael Burry's Scion Asset Management hedge fund had placed bets against the stock through put options have also added to the increase in bearish sentiment surrounding the stock.

With Palantir's bullish momentum taking a breather, investors may be looking to BigBear.ai for the next potentially explosive play in the AI space. Barron's published an article today titled "BigBear Stock Keeps Jumping After Defense Deal. It Could Be a Mini-Palantir" -- and the smaller defense AI player has seen a big influx of bullish bets since the publication of its Q3 report on Monday.

What's next for Palantir?

At this point, there can be little doubt that Palantir is a great business. With its third-quarter report, the company announced that sales had increased 63% year over year -- and non-GAAP (adjusted) earnings of $0.21 per share topped the average analyst estimate of $0.17. The question investors are faced with is how long the company's incredible growth streak will continue and what destabilizing factors could pop over the long term.

Still valued at approximately 292 times this year's expected earnings and 98 times expected sales, Palantir has a hugely growth-dependent valuation even after recent pullbacks. While I think the stock still has what it takes to deliver wins over the long term, shares could continue to be volatile in the near term.

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.