3 Reasons Palantir Stock Could Plunge in September - Here’s What’s Spooking Investors

Palantir faces a perfect storm of headwinds that could send shares tumbling this month.

Regulatory scrutiny intensifies as lawmakers target big data practices. The company's government contracts face renewed examination amid privacy concerns—never a good look when congressional hearings dominate headlines.

Competition heats up as rivals undercut Palantir's pricing model. New entrants offering similar AI-driven analytics solutions at lower margins threaten market share erosion. The moat isn't as deep as bulls claim.

Technical indicators flash warning signals with key support levels breaking. Institutional investors rotate out of high-valuation tech names into safer havens. When the Fed whispers 'tightening,' growth stocks typically get hammered first.

Remember: Wall Street analysts have been wrong about Palantir before—but being early versus wrong feels identical in the moment. Sometimes the 'disruptive tech' narrative just can't outweigh basic math.

Is enterprise AI overhyped?

It's been almost three years since OpenAI's ChatGPT introduced the world to generative artificial intelligence (AI) large language models (LLMs). And while these algorithms have taken off with regular consumers, the crucial enterprise side of the industry might be underperforming expectations. According to a study from the Massachusetts Institute of Technology (MIT), a whopping 95% of enterprise AI pilots fail to deliver meaningful results for clients.

This finding calls into question the sustainability of the billions in capital expenditures pouring into both the hardware and the software sides of this industry. And the smart money is already taking notice. According to Steve Sosnick, chief strategist at global trading platform Interactive Brokers, institutional investors have already begun to trim their AI exposure while retail investors continue to buy the dips.

Does Palantir have a secret sauce?

Despite the possible cracks forming in the enterprise AI software market, Palantir's business is still firing on all cylinders. Second-quarter revenue surged 48% year over year to $1 billion, driven, perhaps surprisingly, by U.S. enterprise clients. Sales jumped 93% to $306 million.

While Palantir's brand was built on its government and military contracting, most of its top-line growth is now being driven by regular companies looking to take advantage of its AI-driven data analytics tools. On some level, this contradicts the MIT report that suggests corporations are struggling to incorporate AI tech into their operations. However, on the flip side, this reliance on private sector adoption may call Palantir's economic moat into question.

Palantir isn't the only enterprise software company using LLMs to help businesses analyze their internal data. For example, tech giants likeand(through a platform called Fabric) offer similar AI-powered data analytics solutions for enterprise clients. Over the long term, investors should expect these rivals to encroach on Palantir's market share, potentially lowering its growth potential and margins.

The stock's valuation looks too high

Image source: Getty Images.

Neither of the previous two challenges would make Palantir a bad investment by itself if the stock had a reasonable valuation. The problem is that it doesn't. With a forward price-to-earnings (P/E) ratio of about 200, Palantir trades at an immense premium over theaverage of 22 and other high-profile AI stocks likeand Microsoft, which boast relatively modest forward P/Es of 40 and 33, respectively.

Palantir's rich valuation is difficult to explain based on fundamentals. And the company may have attracted a cult following based on the celebrity status of its co-founder, Peter Thiel, who was an early supporter of President Donald TRUMP and mentored his vice president, JD Vance. Investors may be assuming that political proximity could unlock value for Palantir that might not show up in its financial statements.

Of course, political exposure also comes with risks (take Elon Musk'sfor example). And if Palantir's brand becomes too politically charged, it could drive enterprise clients away. Overall, the risks of Palantir stock seem to outweigh the potential rewards right now. And investors should wait for the valuation to drop before considering a position.