Why Palantir Stock Plummeted Last Month But Is Soaring in July

Palantir (NASDAQ: PLTR) stock got hit with big sell-offs across June's trading as investors continued to prioritize bets on the artificial intelligence (AI) hardware space over software plays. The S&P 500 fell roughly 1.1% in the month, and the Nasdaq Composite declined 2.8%.

Palantir's valuation also moved lower in June as investors weighed the potential fallout of losing a business relationship with the UK's National Health Service (NHS). Commentary from investor Michael Burry also weighed on the stock. Despite pressures last month, the company's share price is rebounding in July.

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Palantir got hit with multiple selling pressures last month

Investors broadly continued to move out of AI software stocks last month, instead choosing to favor companies with exposure to strong artificial intelligence semiconductor demand trends. The dynamic prompted continued sell-offs for Palantir stock, and there were other significant bearish catalysts in the month.

Along with the general valuation malaise for AI software stocks, Palantir continued to face valuation pressures connected to concerns about competitive pressures from Anthropic and comments from Michael Burry. The famous investor has said that Anthropic is "eating Palantir's lunch," and he made comments last month reaffirming his short bet against Palantir.

Adding another negative valuation catalyst, developments emerged last month that suggested Palantir could be on track to have its contract with the NHS. The deal is set to expire early next year, and the UK parliament's Science, Innovation, and Technology Committee came out in favor of not renewing the contract last month. The last contract was valued at roughly $440 million.

Palantir stock has been bouncing back in July

After a big round of sell-offs in June, Palantir stock has been seeing significant rebound momentum this month. The company's share price is up roughly 11% in July as of this writing.

Palantir's valuation has been on an upward trend as investors have bought back into leading AI software names. The stock also appears to have gotten a boost from news that Michael Burry had reduced his short position against the company.

News hit at the end of June that the famous investor had trimmed his bet that the AI software stock would continue to decline in value. Along with news that he had increased short positions on leading AI chip names, including Nvidia and Micron, Burry's adjustment on Palantir seems to have had some impact on the AI rotation trend.

In addition to that dynamic, Palantir stock has gotten a boost from positive analyst coverage. DA Davidson published a note on the company on July 2, upgrading its rating on the stock from neutral to buy and raising its one-year price target from $165 per share to $175 per share.

Adding another bullish catalyst, Palantir and Nvidia also announced at the beginning of the month that they were expanding their partnership -- with Palantir integrating Nvidia's Nemotron AI models into its artificial intelligence stack in order to expand service capabilities to the U.S. government and other allied government customers. With software stocks potentially coming back in vogue and Palantir's business growing at an impressive clip, the stock's rebound could continue.

Keith Noonan has positions in Micron Technology. The Motley Fool has positions in and recommends Micron Technology, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.