Down 40%, Should You Buy the Dip on Palantir?

Palantir Technologies (NASDAQ: PLTR) has been one of the hottest artificial intelligence (AI) stocks over the past two years, but even it has been caught up in the recent tariff-fueled market sell-off. After a hot start to 2025, the stock is trading down 40% from its all-time highs, but only down about 2% year to date.

The question, though, is whether now is the time to buy the dip in the stock.

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An AI winner

Palantir's business shouldn't see a direct impact from the tariffs. As a software company involved in data gathering, analytics, and AI solutions, it doesn't sell or manufacture any physical goods that would be subject to tariffs.

Commercial customers impacted by tariffs could theoretically pull back their spending budgets, which could impact the company. However, the reverse could also be true. The company could see more demand for solutions that can help optimize supply chains to mitigate tariff impacts. Its AI solutions, meanwhile, are also often aimed at creating efficiencies and helping customers reduce costs.

Palantir is seeing robust growth in demand from the U.S. commercial sector for its AI platform. Instead of building AI models, the company has instead focused on becoming an AI operating system by concentrating on the application and workflow software layers. This allows it to help customers identify and address real-world problems with AI.

As a result, the company saw huge growth in its U.S. commercial customer count last year. However, many of these new customers are still in the proof-of-concept phase. It has a huge revenue growth opportunity as it moves these solutions into production to tackle real-world issues.

Image source: Getty Images.

One of the stated goals of the Trump administration for instituting its tariffs is to bring manufacturing back to the U.S. Palantir offers a manufacturing operating system called Warp Speed that it markets as "The Manufacturing OS for American Re-Industrialization." This would be another opportunity for the company as it could be utilized to get domestic operations up and running quickly and efficiently.

Palantir's largest customer, though, is the U.S. government, which represented more than 40% of its revenue in 2024. The current tariffs would not impact the current dynamics here. However, Palantir could see an impact from the Trump administration's mandate for the Department of Defense to cut its budget by 8% a year over the next five years. That's a large spending cut and Palantir is very tied to the DoD.

That said, it is still unclear whether the current Department of Government Efficiency (DOGE) initiatives would negatively or positively impact the company. Spending going down could be a negative, but given that its AI solutions can create efficiencies and potentially lower costs, Palantir could also be a DOGE beneficiary.

Valuation remains high

Despite the big drop in Palantir's stock price, it still trades at a very hefty valuation. The stock has a forward price-to-sales (P/S) multiple of 46 times based on 2025 analyst estimates and 36 times 2026 estimates. Its forward P/S multiple is still double the peak multiples that software-as-a-service (SaaS) stocks traded at in 2021 with similar growth rates.

Data by YCharts

That said, you can still see the ingredients that could propel Palantir to become one of the most valuable companies in the world over the long term. The company takes a unique approach to AI that makes it very intriguing. Owning the operating system to smartphones and PCs has propelled companies like Apple and Microsoft to become two of the largest companies in the world. Owning the AI operating system could do the same for Palantir.

Given the stock's valuation, it still can't afford many missteps and must continue to show very strong revenue growth to justify its current valuation. However, this is a stock you really want to own if the valuation continues to come down. As such, investors can look to take a small position while waiting to see if a better buying opportunity arises with the market currently under pressure.

Don’t miss this second chance at a potentially lucrative opportunity

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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

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*Stock Advisor returns as of April 5, 2025

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.