As Democrats Take Over Congress, Is Palantir Stock at Risk?

Palantir Technologies(NASDAQ:PLTR) has been on fire, demonstrating accelerating growth as demand for its proprietary operational management systems increases.

Despite the relentless growth, Palantir stock is 23% off its October high. Wall Street has several worries about the company’s future, including how well Palantir can compete in the age of agentic AI and how expensive the stock still is -- even after its recent slide, it trades at a lofty 112 times earnings and 56 times sales.

However, there's a new concern that may eclipse any other ones. Palantir is a major U.S. defense contractor, supplying several government agencies and the military with sovereign AI services. Earlier this year, President Donald Trump asked for a $1.5 trillion budget for 2027, but Congress did not manage to pass a defense appropriations bill for next year during the session, and with a new Congress dominated by Democrats coming in January, that proposed budget isn't likely to be approved without significant revisions.

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Why Palantir is on fire

Palantir's original products were deliberately created for U.S. defense and intelligence agencies, and the company was backed by the CIA's venture capital arm.

It has more recently targeted commercial operations with its AIP (Artificial Intelligence Platform), which connects a company's disparate data sets and unifies all of its AI apps and agents. This can give Palantir’s clients a leg up on their competition and help them perform faster, more efficiently, and with greater accuracy in defining and reaching goals.

The company has been growing rapidly, and its new focus on commercial clients is generating incredible demand. In the third quarter, total revenue increased 96% year over year, driven by a 148% increase in U.S. commercial revenue.

It's also highly profitable, with a 62% adjusted operating margin and a 53% cash flow margin.

Why political headwinds may not derail its growth

The company’s commercial revenue surpassed its government revenue for the first time in the third quarter, setting it up to thrive even if there are setbacks relating to government spending.

Palantir closed 212 deals worth at least $1 million in the quarter, including 107 worth at least $5 million and 64 worth at least $10 million. Total contract value (TCV) increased 6% from last year, but U.S. commercial TCV outpaced that, up 11%. That means Palantir is on track for higher revenue even if there is a slowdown in defense spending.

Trump’s requested 2027 defense budget is 38% higher than the 2026 budget. If Congress can’t pass that spending bill and others before the end of the brief lame duck session, either the U.S. government will face a shutdown or — more likely — it will pass a continuing resolution that temporarily maintains government spending at 2026 levels. That would punt further budget debates to the incoming Congress.

This could impact Palantir. If its government contracts remain stagnant while commercial contracts increase, its total revenue growth should decelerate.

That would likely take a toll on Palantir’s valuation.

The AI software company is likely to keep growing fast, but the changes in Washington could be a critical factor in where the stock goes over the next year.

Jennifer Saibil 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.