Icarus’s problem was flying too high.
The character from Greek mythology flapped his wings made of feathers and wax all the way to the sun. Then the heat melted the wax and Icarus crashed into the sea.
The story might bring to mind Palantir Technologies (PLTR) stock, which has tumbled 30% in the past five trading days, shortly after it touched $125.
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On Feb. 19 Palantir stock gave up 10% on news of Pentagon budget cuts and Chief Executive Alex Karp’s stock-sale plan. The stock continued to fall in the following four sessions.
Even after that tumble Palantir stock is up 16% in 2025 to date, outpacing the S&P 500â˛s gain of less than 2% during that period. The stock was the top performer in the S&P 500 index in 2024, with a 340% surge.
Palantir provides AI-driven data-analytics software to the U.S. military and government.
Its revenue growth accelerated on rising demand for AI-powered decision-making software. In early February the company reported that Q4 revenue grew 52% year-over-year to $558 million and revenue for all of 2024 grew 29% to $2.87 billion.
Palantirâs stock price was below $10 in early 2023; it closed on Feb. 25 at $87.
So the question is: Will the stock bounce back or continue to fall?
Palantir is up 16% year-to-date, outpacing the S&P 500â˛s gain of less than 2% during the same period.
Think of the Cisco bubble in 2000
For those who have been in the market long enough, this all feels familiar.
The swings in Palantirâs stock bring back memories of the late 1990s, when tech companies like telecom-equipment giant Cisco Systems (CSCO)  rode waves of hype and slumped when the bubble burst.
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During the internet revolution of the 1990s, Cisco supplied networking equipment that powered the explosion of websites, email and digital communication. Investors were convinced that Cisco would dominate the industry for decades.
After the company went public in 1990, Ciscoâs stock soared more than 1,000 times over the decade. At its peak on March 27, 2000, the stock hit $80.
But when the dot-com bubble burst, Ciscoâs stock collapsed, plunging to just $8.60 by late 2002. It never returned to its former highs.
A useful valuation tool for assessing high-growth stocks like Palantir is the price-to-sales multiple.
Palantir’s P/S multiple is exceptionally high. As of the market close on Feb. 25, it stood at 77.6. For comparison, Ciscoâs P/S multiple was 38.92 on March 27, 2000, Motley Fool data show.
With its sharp valuation investors are now questioning whether Palantirâs current price truly reflects sustainable future earnings.
Hedge funds are selling Palantir stock: LPL
Analysts have warned about Palantir’s valuation, and hedge funds have begun to trim their holdings.
Adam Turnquist, LPL Financialâs chief technical strategist, analyzed the SEC 13-F filings of U.S. hedge funds and found that managers have slashed holdings in Palantir, reducing allocations by 28.8 million shares in Q4 2024.
Related: Veteran fund manager sounds alarm on Palantirâs stock
Game-changing innovations and technologies have often experienced early-stage bubbles over the past 30 years. But that doesnât mean Palantir lacks long-term investment potential.
Brian Colello, a technology equity strategist at Morningstar, has commented that âmuch of Ciscoâs revenue came from purchases and builds in anticipation of internet growth [prior to the 2000 boom].”
But unlike Cisco back then, there is hardly a one-for-one replacement for the AI solutions Palantir offers.
Wedbush analyst Daniel Ives reiterated an outperform rating and a $120 price target after the selloff, which he views as a buying opportunity.
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“Palantirâs unique software approach positions it to gain more IT budget dollars at the Pentagon, not less,” the analyst said. “The company is well suited for this new disciplined spending environment, and as defense programs are reevaluated, Palantir could secure a larger role in government IT spending.”
“We believe Palantir is on track to become the next Oracle or Salesforce, potentially reaching a $1 trillion market cap in the coming years,” he added.
Related: Veteran fund manager unveils eye-popping S&P 500 forecast
