Why Palantir Fell Hard To Start 2026

Shares of AI software giant Palantir (NASDAQ: PLTR) plunged on Friday, falling 5.9% as of 1:41 PM EDT.

There wasn't any company-specific news for Palantir today, but a combination of related factors led to the stock's big slump to start the new year.

Software rotation, profit-taking, and Elon Musk may be culprits

The overall software sector fell on Friday, so Palantir certainly wasn't alone in its decline. The across-the-board declines in software stocks, combined with an unusually strong day for semiconductor stocks, point to a big rotation among technology investors today.

In addition to that apparent rotation, Palantir may also be seeing a round of profit-taking on the first trading day of the new year. The stock was up 138% in 2025, as the company delivered a series of earnings reports that consistently exceeded expectations, with quarterly growth accelerating between 40% and 60% every quarter.

Investors may have been waiting to sell the stock until the new year in order to defer capital gains tax payments until April of 2027. So, that mere technical factor could be playing a part in the sell-off today.

Meanwhile, Palantir may be suffering somewhat from its association with Elon Musk. Musk and Palantir co-founder Peter Thiel are close friends, dating back to their days as early founders of PayPal.

Elon Musk's Tesla (NASDAQ: TSLA) reported fourth quarter deliveries of 418,227 vehicles today, which was well short of the 440,907 vehicle count that Wall Street investors had estimated for the quarter. The miss brought Tesla's vehicle deliveries to a second straight year of declines.

While there isn't really any tangible connection between Palantir and Tesla, the two stocks may be linked for some investors, who may group all of the "PayPal Mafia" stocks associated with Musk and Thiel together in the same group of stocks.

Image source: Getty Images.

Where will Palantir go after a blockbuster 2025?

After its monster year last year, Palantir's stock still looks quite frothy at 390 times trailing earnings, even after today's decline.

But the seemingly insane valuation might not be as crazy as it seems if Palantir can continue to deliver the blockbuster growth it did in 2025, as the company became the go-to platform for harnessing generative AI into tangible business outcomes. Only time will tell if the AI revolution can continue propelling Palantir to new heights, or if the company's growth will inevitably stall out.

Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies, PayPal, and Tesla. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2025 $75 calls on PayPal. The Motley Fool has a disclosure policy.