There's 1 Top AI Stock Insiders Keep Selling. Here's Why Shares Could Plummet 50% in a Market Crash.

The Trump administration's ambitious tariff actions (and threats) have set off a level of volatility in the U.S. stock market that investors haven't seen since the pandemic. The market has not officially crashed, but it appears that the artificial intelligence (AI)-driven market rally that began in early 2023 has come to an end.

Given this volatility, it is worth considering which high-flying stocks may be most vulnerable if the market were to break down or crash in a worst-case scenario. My analysis suggests standout AI stock Palantir Technologies (NASDAQ: PLTR) is arguably the riskiest stock to own in this shaky market.

The stock could realistically plummet 50% or more in a crash or prolonged downturn. Do Palantir's insiders see the same warning signs? They have sold stock throughout the past year.

Here is what you need to know.

AI excellence has fueled a special run

Palantir Technologies has had a remarkable run. The stock has risen over 404% over the past year alone and is up 1,600% since the start of 2023.

The company develops software applications on its proprietary platforms for government and enterprise customers. It launched its Artificial Intelligence Platform (AIP) midway through 2023, specifically for AI applications, and the company's revenue growth has continually accelerated since then.

Palantir's business has a very high ceiling due to the numerous things its AI technology can do. Its capabilities encompass all aspects of an organization's data-driven operations, including applications across customer service, sourcing and supply chains, data modeling, scheduling, and more. The company ended 2024 with 711 total customers, a tiny fraction of the many companies and organizations that could use AI software at some point.

Insiders can sell for many reasons, but overwhelming selling could be a warning sign

And yet, Palantir's insiders (executive-level employees or large stakeholders) are selling stock. According to data collected by Barchart from regulatory filings, insiders have sold a total of 96.5 million shares across 95 transactions over the past 12 months. There have been zero insider purchases.

Insiders can sell for various reasons. Many key employees receive stock as part of their compensation package. For some, stock-based compensation is most of their income. It's common for these employees to schedule automatic sales to raise cash.

This explains part of the selling, but there are still multiple insiders with discretionary sales exceeding $1 million. Insiders have sold at prices ranging from $74 to $115 in 2025.

Insiders are people, too. Why they sell stock is their business. For individual investors, it's more about identifying the trend and understanding why the group as a whole could be selling shares rather than buying them. That's why regulations require that insiders disclose their trades. It's about transparency.

Palantir's excessive valuation could be the issue

Sometimes, the simplest explanation is the best. Palantir's stock performance has inflated its valuation to excessive levels that seem pretty unsustainable. The stock trades at 86 times its trailing-12-month revenue and 531 times its trailing-12-month earnings per share. It is likely the most expensive stock in the S&P 500 index on a valuation basis.

Data by YCharts; PE = price to earnings.

Just how extreme is Palantir's valuation right now? Its price-to-sales ratio (PS) is double what it was during the peak of the 2020-2021 stock market bubble! Analysts estimate the company will grow earnings by an average of 31% annually over the long term. That's an enviable rate, but again, nowhere near enough to justify where the stock trades today.

It doesn't seem far-fetched that some insiders saw this and decided to cash out some of their stock at generational valuations they might not see again.

Yes, the stock could plummet 50% or more

Bubbles often need a pinprick to burst. Perhaps it's a market crash or a prolonged downturn. Maybe Palantir's growth will slow amid the ongoing economic uncertainty.

It's impossible to time these things. Regardless of the match that eventually ignites it, Palantir's valuation is a powder keg in the worst ways.

If it blows up, the stock could decline more than investors expect. Frankly, it could plummet 50%, and it would still be an expensive stock. That doesn't mean it will happen, but the odds are not in favor of things going well for investors who buy at these prices.

Palantir Technologies' insider selling is a clue that you may want to pay attention to.

Should you invest $1,000 in Palantir Technologies right now?

Before you buy stock in Palantir Technologies, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Palantir Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $594,046!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $680,390!*

Now, it’s worth noting Stock Advisor’s total average return is 872% — a market-crushing outperformance compared to 160% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 21, 2025

Justin Pope 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.