Palantir saw its biggest drop in more than two years, as the CEO's stock sell-off plan and concerns over Pentagon budget cuts sent the stock plummeting. The stock continued to slide after market hours.

The data analytics company dropped 10% on Wednesday, marking its largest decline since November 2022, and fell another 5% in after-market trading.

Despite this, Palantir remains one of the top-performing stocks in the S&P 500, with shares rising 48% year-to-date as of Wednesday's close, driven by AI development and its close ties to co-founder Peter Thiel's relationship with Donald Trump and J.D. Vance. The stock has already surged 340% in 2024.

On Tuesday night, Palantir CEO and co-founder Alex Karp filed a new Rule 10b5-1 trading plan with the SEC, enabling him to sell up to 99.75 million PLTR shares through September 12 of this year. This is worth $1.12 billion based on Wednesday's closing price. He also scrapped his previous plan to sell up to 48.9 million shares.

Meanwhile, the Pentagon announced on Wednesday that it would direct military leaders to draw up a list of potential cuts totaling about $50 billion from the upcoming fiscal year 2026 budget. The savings will be redirected to President Donald Trump's national defense priorities, according to Reuters.

Robert Salesses, performing the duties of the deputy defense secretary, said the military would examine the budget proposed by President Joe Biden's administration and come up with potential savings.

Palantir is heavily reliant on government spending. In Q4, the company reported $828 million in revenue, a 36% year-over-year increase, with $343 million (41% of total revenue) coming from the U.S. government, marking a 45% year-over-year rise. The company is believed to benefit from the close relationship between Peter Thiel and Trump, who has been a significant supporter since 2016.

Alex Karp has also voiced support for Trump and Elon Musk recently, despite backing Kamala Harris in the past. What I don't like about what's going on is I just view this as watching the Democratic Party commit suicide, Karp said on Tuesday, adding that 90% of the country is like, 'get rid of that fraud, waste, and abuse.'

On Trump, Karp praised him, saying, He's quite brilliant at this. So what I see is he's like, 'I'm not accepting a paradigm where America just keeps financing things, there's no real discussion.'

However, Palantir's valuation remains a concern. The company is valued at 70x its price-to-sales (P/S) ratio and 590x its price-to-earnings (P/E) ratio, indicating a potentially overvalued stock.