Shares of Palantir tumbled as much as 12.5% on Wednesday following a report that the Pentagon has been directed to prepare for 8% annual defense budget cuts in each of the next five years.
Palantir, known for its defense contracting work, provides software and AI-driven analytics to US military and intelligence agencies.
The prospect of sustained reductions in defense spending raises concerns about the company’s future revenue from government contracts.
The stock was down around 10% to close at $112.06 on Wednesday. It is down around 1% in after-hours trading.
Palantir stock is up close to 50% since the start of the year.
Budget cuts at the Pentagon
Defense Secretary Pete Hegseth has instructed senior Pentagon leaders to draft budget-cut plans, as per a Washington Post report,
Hegseth ordered the proposed cuts to be drafted by February 24, according to the memo, which outlines 17 categories that the Trump administration wants to exempt.
These include operations at the southern US border, nuclear weapons and missile defense modernization, and the acquisition of one-way attack drones and other munitions.
The memo outlines continued funding for key regional headquarters, including Indo-Pacific Command, Northern Command, and Space Command, the report added.
However, it excludes European Command, which has been central to US strategy in Ukraine, as well as Central Command and Africa Command, which oversee operations in the Middle East and Africa, respectively.
The Pentagon’s 2025 budget stands at approximately $850 billion, with bipartisan consensus in Congress on the need for substantial spending to counter threats from China and Russia.
If fully implemented, the proposed cuts would amount to tens of billions of dollars annually over the next five years.
The proposed cuts, if implemented, would represent the most significant effort to curb Pentagon spending since 2013, when congressionally mandated budget reductions, known as sequestration, took effect.
The report has fueled uncertainty over future military tech spending, impacting defense-focused companies, with Palantir bearing the brunt of investor concerns.
Broader US market on Wednesday
Wall Street saw a modest pullback early Wednesday, but stocks recovered as the session progressed, pushing the major averages into positive territory.
The S&P 500 set another record closing high, rising 0.2% to 6,144.15, while the Dow gained 0.2% to 44,627.59, and the Nasdaq edged up 0.1% to 20,056.25.
Traders brushed off initial concerns about a potential global trade war despite President Donald Trump’s announcement of impending tariffs on automobiles, pharmaceuticals, and semiconductors.
The 25% tariffs, which could take effect as early as April 2, may increase further over time, Trump warned.
Markets also remained resilient despite the Federal Reserve’s meeting minutes reinforcing a cautious stance on monetary policy.
Officials signaled the need for more inflation progress before considering rate cuts, citing ongoing economic uncertainty and shifting risks.
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