With Wall Street in the midst of a sell-off, a number of previously market-leading stocks are unsurprisingly trading well below their highs. Two former high-flying tech stocks that have been in free fall recently are Palantir(NASDAQ: PLTR) and Tesla(NASDAQ: TSLA). Palantir's stock is down by about 37% from its high as of this writing, while Tesla shares have been more than cut in half.
Despite their steep declines, though, I still would not be a buyer of either stock at their current levels.
Palantir
There are two big reasons why I'd be cautious with Palantir's stock right now: its valuation and the potential impact of reduced government spending.
Even after its fall in price, Palantir's valuation is still quite steep. The stock trades at a forward price-to-sales (P/S) ratio of over 49 times as of this writing, which is incredibly frothy for a company that grew its revenues by about 36% year over year last quarter. For context, that ratio is more than double the peak software-as-a-service (SaaS) industry multiple from a few years ago when the sector was growing at rates of more than 30%.
In addition, Palantir's revenue growth outlook faces a lot of uncertainty given the federal government's new cost-cutting tactics. Last month, President Trump's Defense Secretary Pete Hegseth told the Department of Defense to look for ways to reduce its budget by 8% over the next five years. Palantir cut its teeth as a government contractor, with defense and intelligence agencies making use of its data gathering and analytics platform to aid them in mission-critical tasks such as fighting terrorism. The U.S. government is still its largest customer, accounting for about 42% of its total revenue last year.
While there is an argument to be made that Palantir could thrive in this environment, as its solutions help create efficiency, how matters will eventually shake out is unclear. The company has seen some lumpy growth from its U.S. government segment in the past. As such, the new Pentagon budget directives create a risk for the company and its sky-high valuation.
That said, Palantir would be an attractive stock to own if one could buy it at the right price. The company's commercial sector growth has been huge since it introduced the Palantir Artificial Intelligence Platform (AIP), as it has turned its focus on the application and workflow layers of artificial intelligence (AI) to create an AI operating system for its clients. It has rapidly been gaining new commercial customers through its AI boot camps, which have attracted a lot of new prototype work. It now has a big opportunity to move these clients from proof-of-concept projects to a wider use of real-world applications.
I'd consider dipping a toe into Palantir stock if it were trading in the low $40s. That would give it forward price-to-sales multiple of about 20, based on analysts' revenue projections for 2026. That still wouldn't be a cheap valuation, but this is a stock that one could justify paying a premium for, within reason.
Image source: Getty Images.
Tesla
Tesla is another stock I still wouldn't buy, even after its big drop in price.
CEO Elon Musk's involvement with President Trump and the Department of Government Efficiency (DOGE) has made him an even more polarizing figure than he was before. But Tesla's electric vehicle business had been struggling even before Musk took up his unusual position with the Trump administration. Its automotive revenue fell by 6% in 2024 and 8% in the fourth quarter. Deliveries, meanwhile, were down 1% for the year, but up 2% in Q4. Tesla has been struggling in China -- the largest electric vehicle (EV) market in the world -- due to its aging vehicle line-up and intense competition from Chinese rivals.
Musk's government involvement, meanwhile, likely isn't doing Tesla any favors when it comes to selling EVs. In a world divided by politics, Musk's high-profile work for the president is likely alienating close to half of the U.S. population, and probably an even larger percentage of potential customers outside of the U.S.
And while tariffs could hurt its rivals more than Tesla, the company is not immune from higher material costs. Rising costs and slowing sales are not a great combination.
Tesla bulls, though, will argue that the company is no longer about electric vehicles alone, and that its future will depend more on technologies such as autonomous driving, AI, and robotics. That's all fine -- but Musk has a long history of overpromising when it comes to technological innovations. When I asked Musk's own Grok 3 AI model to make a list of times that Musk had made promises about autonomous driving that did not come true, it quickly produced nine examples, including his prediction in 2015 that Tesla would achieve complete autonomy within three years (2018) and his 2019 assertion that Tesla would have a million robotaxis on the road by the end of 2020. Grok added that Musk has shown a consistent pattern of making ambitious claims about timelines that Tesla then failed to deliver on.
It's 2025 and Tesla has still not delivered a system capable of fully autonomous driving, nor does it operate any robotaxis on a paid commercial basis. Meanwhile, Alphabet's Waymo unit has been providing robotaxi rides to paying customers since late 2022.
With Tesla's core business struggling and a lot of hope priced into its stock, I'd avoid investing in it.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Palantir Technologies, and Tesla. The Motley Fool has a disclosure policy.
