War in the Middle East has dragged Palantir Technologies’ (NASDAQ: PLTR) share price.
As of 22 April 2026, it was down by 12.6% year to date, compared to other defence companies such as Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC) which are up by 15% and 5% respectively.
Palantir was founded in 2003 to build software for the US intelligence community that would assist in counterterrorism initiatives.
Subsequently, it branched out to work with commercial enterprises who faced similar challenges working with data.
In 2023, Palantir launched its artificial intelligence platform AIP, combining its existing software platforms with generative AI models, and riding on the AI boom following the launch of ChatGPT in November 2022.
Currently, it offers four principal platforms: Gotham, Foundry, Apollo, and AIP.
This article will consider whether this underperformance in Palantir’s share price is a temporary speed bump, thus warranting closer attention from long-term investors, or whether it reflects deeper problems that should cause concern.
Why Palantir’s Share Price Is Struggling This Year
On their own, Palantir’s financial numbers do not justify the pessimism.
In fact, growth appears to be accelerating.
Revenue expanded year on year (YoY) by 56% in 2025.
Meanwhile, the company is expecting revenue of between US$7.182 billion and US$7.198 billion in 2026, which implies revenue growth of 61% at the midpoint.
Palantir’s margins are also impressive.
The company ended 2025 with an adjusted operating margin of 50%, and this is expected to rise to around 57% this year.
So why is Palantir’s share price struggling, especially compared to its peers?
The main culprit is Palantir’s nosebleed valuation.
As of 22 April 2026, it traded at a forward P/E ratio of 101.3, compared to Lockheed’s 18.9 and Northrop’s 21.5.
Although the war in the Middle East is leading to an increase in defence spending, much of this will have to go to addressing a depletion of physical weapons stock, which are produced by the traditional defence contractors.
There’s also the spectre of more competition.
Investor Michael Burry, who made a fortune betting against the US real estate bubble in 2007, has taken a short position in Palantir via put options, claiming that Anthropic is “eating Palantir’s lunch”, a view that analysts like Dan Ives have dismissed as a “fictional narrative”.
What Palantir Does Differently (and Why It’s Still Relevant)
It’s difficult to come to a definitive view of the impact of AI on Palantir’s business, but the company is still delivering the goods for its customers.
For example, US President Donald Trump posted earlier in April that the company had “great warfighting capabilities”, while the data chief for the UK’s National Health Service (NHS) claimed it was delivering “outstanding results.”
Palantir focuses on building long-term, strategic relationships with its customers, and this is also reflected in its contracts, which often last for multiple years.
Beyond supporting individual institutions, Palantir says that its platforms have become central operating systems for entire industries and sectors.
This allows its software to be distributed to many institutions within an industry – and the industries Palantir is exposed to are diverse, from airlines to insurance, and healthcare to telecommunications.
This is not something that a new entrant, even one with a good product and funding, can easily displace.
Key Risks That Could Amplify Volatility
Despite these advantages, investors should bear in mind that although Palantir has sought to expand its commercial business, 54% of revenue still comes from government customers.
This revenue stream may be negatively impacted by budget cuts or policy changes.
Palantir has also been the subject of controversy, drawing scrutiny over its close links to the US government, including its work with the US Immigration and Customs Enforcement.
Recently, some NHS professionals were reported to have boycotted the platform, saying that they didn’t feel comfortable using a system built by Palantir.
What Should Investors Watch for in Palantir’s Upcoming Reports?
Investing is a long-term activity.
But there are several quarterly metrics that investors can monitor to determine how the company is performing.
First, Palantir’s Rule of 40 score.
This is derived from a theory stating that healthy software-as-a-service companies should have a combined sum of their revenue growth rate and profit margin that exceeds 40%.
Indeed, the company features this score prominently in its investor presentations, with the most recent showing that its score has risen from 57% to 127% between 1Q2024 and 4Q2025.
Second, its free cash flow, which indicates how much cash the company’s operations are actually generating, after accounting for capital expenditure.
Palantir expects to generate US$4 billion in adjusted free cash flow in 2026, around 76% higher than in 2025.
Finally, investors should look at Palantir’s total contract value (TCV), which is the total potential lifetime value of contracts entered into with customers at the time of contract execution.
This is an indication of how much business the company is generating over a longer-term, multi-year period.
Its TCV reached US$10.8 billion in 2025, up by 128% YoY.
How to Position Palantir in Your Portfolio
Palantir can serve as one of a portfolio’s high-growth cornerstones, for investors with high risk tolerance.
However, it is worth noting that the stock has historically experienced sharp swings in both directions, reflecting its high-growth, high-risk profile.
This volatility means that Palantir may not be a good fit for more conservative portfolios.
However, investors can still gain exposure to the stock through broader tech ETFs, such as the Global X Defense Tech ETF, which has 5.6% of its holdings in Palantir, and is up by 12% year-to-date.
Get Smart: Position Your Portfolio
Palantir’s revenue and profit growth appear to be accelerating in 2026, and the company is poised to ride on several megatrends, from a rise in defence spending to AI growth.
However, its sky-high valuation also means that execution needs to be flawless.
AI is also a double-edged sword, as it may present other players with an opportunity to compete against Palantir.
Investors should weigh these factors before deciding how to position their portfolios.
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Disclosure: Silas H. does not own any shares of the companies mentioned.
