Palantir Stock Rises Ahead of Tariff News. Defense Spending Is a Wild Card.

Palantir Technologies Inc. (PLTR) shares have been on a roller coaster ride in recent months, with the latest twist coming as investors await President Trump’s announcement on reciprocal tariffs. On Wednesday, Palantir’s stock rose 1.3% to $85.74, bucking the broader market trend. This movement comes amidst a flurry of news that could significantly impact the company’s future trajectory.



One of the key catalysts for Wednesday’s stock movement was a report from William Blair analyst Louis DiPalma, indicating that Palantir is poised to win a significant U.S. Army contract. The Next-Generation Command and Control (NGC2) program could eventually deliver annual recurring revenue approaching $100 million. This contract would make NGC2 one of Palantir’s largest deals, placing it in the same league as the company’s other Army projects for Maven and Vantage.

However, the defense budget cuts proposed by the Pentagon pose a significant risk to Palantir’s revenue streams. The company generated $1.2 billion of its $1.9 billion revenue in 2024 from government contracts, making it highly exposed to any reductions in federal spending. Defense Secretary Pete Hegseth has proposed annual budget cuts of around $50 billion, which includes the termination of over $580 million in grants and programs. One of the cuts mentioned is a government HR software program, which is directly in Palantir’s wheelhouse. This highlights the potential risk to Palantir’s revenue from government contracts.

Despite these risks, Palantir’s commercial growth and AI potential offer some optimism. Chief Technology Officer Shyam Sankar argued that government dysfunction, not budget cuts, is the real problem. He pointed to Palantir’s commercial growth as a sign of resilience, noting that it thrives in more transparent, performance-driven environments. Palantir’s commercial revenue grew by 54% in 2024, including a 64% surge in the fourth quarter, indicating strong momentum in this sector.

The upcoming tariff announcements by President Trump add another layer of uncertainty. The high level of uncertainty has left most analysts urging caution. LPL Financial analysts advised, "It’s tough to lay out a tariff playbook for investors right now, so our advice is to wait and see." Morgan Stanley analysts expect Trump to stake out a "maximalist starting point for bilateral negotiations," which could lead to policy uncertainty and growth risks persisting.

In conclusion, while the proposed defense budget cuts pose a significant risk to Palantir’s revenue streams, the company has several strategies at its disposal to mitigate these risks, including focusing on commercial growth, leveraging AI for efficiency, and diversifying its revenue streams. However, investors should carefully weigh the risks associated with defense budget cuts and high volatility against the potential for commercial growth and AI innovation. The upcoming tariff announcements add further uncertainty, making it crucial for investors to stay informed and consider all factors before making a decision.