Why Palantir Stock Jumped Today

Shares of Palantir Technologies (NASDAQ: PLTR) spiked on Friday. The company's stock finished the day up 7.7%. The move came as the S&P 500 (SNPINDEX: ^GSPC) was flat and the Nasdaq Composite (NASDAQINDEX: ^IXIC) fell 0.3%.

The New York Times released a report Friday detailing the extensive and growing relationship Palantir has with the Trump administration.

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A growing relationship

Palantir, which leverages artificial intelligence (AI) to analyze massive data sets and help make better decisions, is increasingly being called upon by the Trump administration to solve problems in agencies across the federal government, including the IRS and the Department of Homeland Security.

While many of the details and contracts were previously known, the report reveals how the administration views Palantir and its Foundry product as an increasingly invaluable tool, boosting investor enthusiasm. It also detailed key personnel connections between Palantir and the federal government, such as the former Palantir engineers who now work for the newly formed Department of Government Efficiency (DOGE).

Beware of Palantir's valuation

While this relationship will no doubt benefit Palantir's ability to win new government contracts, I still don't think it's enough to outweigh the stock's valuation, which is wildly high. Its price-to-earnings ratio (P/E) of 530 is exceptionally high and, in my opinion, divorced from reality. There is no doubt that Palantir, by and large, is executing at a very high level, but a valuation this high means it must execute perfectly for years.

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.