Palantir shares drop 9% as retail traders’ latest cult obsession starts to unwind

Investors continued to dump Palantir shares on Thursday, escalating concerns that the latest hot pick among retail traders could be fizzling out.

Shares of the mysterious technology and defense stock retreated close to 9% on Thursday. That builds on Wednesday’s slide of around 10%, which came after shares touched an all-time high earlier in the day and marked the stock’s worst day since May.

Wednesday’s initial decline came as investors keyed in on the CEO’s new stock sale plan and comments from Defense Secretary Pete Hegseth reported by The Washington Post on plans to slash defense budgets.

Now, the continued slide raises alarm of a popular stock among retail investors showing signs of petering out. Shares had run up amid investor excitement around artificial intelligence, making Palantir the best performer within in the S&P 500 last year.

Palantir has been one of the most-bought securities among everyday investors, data shows. The company seeks out these traders, with executives like CEO Alex Karp speaking directly to them on earnings calls and in video addresses.

“The activity in Palantir is dominated by retail investors,” said Gil Luria, head of technology research at D.A. Davidson. “The company embraces that and caters to those investors as much or more than than any other company.”

Vanda Research found the stock has trailed just Nvidia, Tesla and the SPDR S&P 500 ETF Trust (SPY) in net inflows from retail investors, according to 2025 data that runs through early February. Palantir was also one of the most-bought stocks by individual traders over the past week, per data from JPMorgan released Wednesday.

Palantir has become a sort of cult favorite among the retail crowd in recent months. The stock shot up more than 60% in November alone as investors evaluated which companies would benefit from President Donald Trump’s return to the White House.

Layered on top of that is the fact that Peter Thiel, co-founder of PayPal with Elon Musk, has chaired Palantir’s board for more than two decades. Musk is leading the DOGE efforts to cut government spending and there’s speculation he could even use Palantir’s technology to help him do it.

The company’s valuation has given some market participants reason for pause, as its 194 forward price-to-earnings multiple far exceeds the S&P 500‘s at 22. But sustained devotion from retail investors can actually help justify its lofty valuation, according to D.A. Davidson’s Luria.

“Palantir is trading at an unprecedented premium to other software companies,” Luria said. “The reason is that they have this very loyal retail investor support.”

In other words: Palantir’s valuation makes it a “live-by-the-gun, die-by-the-gun” stock, Ritholtz Wealth Management CEO Josh Brown said Thursday on CNBC’s “Halftime Report.”

Hegseth reportedly told Pentagon officials to prepare to slash defense budgets by 8% annually over the next 5 years, a move that can worry investors about the state of deals between the government and contractors like Palantir. However, Palantir executives previously said they are optimistic about members of the new Department of Government Efficiency seeing value in the company’s contributions.

Palantir also disclosed in a regulatory filling on Tuesday night that Karp can sell 10 million shares of the company’s stock over the next six months. His eccentric persona has drawn comparisons to Tesla‘s Musk and is considered to be helping to drive attention and interest among retail investors.

With these declines, the stock is down about 14% this week. Still, shares still up more than 35% in 2025 after skyrocketing around 340% in the prior year.

While mom-and-pop investors have rushed into the stock, Wall Street isn’t as on board. The average analyst polled by LSEG has a hold rating, with a price target implying shares should drop from here.

Part of this disconnect between Main Street and Wall Street stems from the fact that everyday investors don’t fully understand that “a good product doesn’t necessarily mean it’s a good company, and a good company doesn’t necessarily mean it’s a good investment,” said Christopher Schwarz, a finance professor at the University of California Irvine who studies retail trader behavior.

Schwarz pointed out that the stock is trading at around 80 times its sales, adding that no company of any size would be considered a smart investment at that rate.

“It’s just crazy expensive — and people just don’t understand that there’s no way they can make money on the stock over the long term,” Schwarz said. “The more it goes up now, the more it’s going to crash in the future.”