Why Palantir Stock Fell After Expanding US Government Contracts

The Palantir Technologies Inc (NYSE: PLTR) stock price fell 4.4% after announcing that it had expanded its strategic partnership with Microsoft’s cloud computing platform to government contracts. Investors sold Palantir shares on the news amid fears that the company is over-reliant on government contracts. 

Palantir has faced backlash from privacy activists who say that its AI software used by US security agencies such as the Central Intelligence Agency (CIA) and the US military is overly intrusive and may infringe on the privacy of individuals who are not criminals but may be victimised unnecessarily. 

Police forces in Germany are already rolling back their use of Palantir’s software due to the same privacy concerns, with the company admitting that its European business may falter due to the same concerns. However, the US government remains its largest client, with the CIA being its largest client. 

Palantir is facing a unique headwind in the United States, where some military branches are now welcoming bids from its rivals to reduce their over-reliance on the company’s software. These military units have realised that they are over-exposed to Palantir and would suffer significant disruption if something happened to the company. 

The military and intelligence units are now splitting contracts that would have been awarded solely to Palantir between multiple vendors to minimize the risk that a disruption at Palantir would cause to their operations. 

Therefore, Palantir’s stock price fell after announcing its expansion of government contracts running on Microsoft’s Azure cloud platform, indicating that it still relies on the US government for future business. 

Investors have urged the company to focus on its commercial business by finding new clients for its software instead of government agencies that could be subject to politics and public opinion, exposing the company to changes in public policies.  

Akash Jain, President of Palantir USG, said: “Leveraging lessons from our partnership in the commercial sector, we are looking forward to delivering innovation on behalf of the most important US Government missions on an accelerated timeframe. Today's announcement represents an inflection point in our partnership that will benefit our public sector stakeholders.”

*This is not investment advice. 

Palantir stock price. 

The Palantir stock price has risen 21.28% this year but has recently traded sideways.