With Palantir's stock (PLTR) tanking, its biggest fans — retail investors — are taking a pause.

Retail investor purchases of Palantir's stock have fallen off a cliff since early February, according to new data from Vanda Research (see chart below). The peak in retail purchases of Palantir came in mid-January as momentum traders rode one of their favorite stocks.

Palantir shares hit a record high on Feb. 18 and have since plunged 32%.

"Among the top retail-traded stocks, Palantir could be the most vulnerable to a loss of retail momentum. if I were to pick a single name that could be most at risk of an unwind, PLTR would be it," Vanda Research senior vice president Marco Iachini said.

The Palantir sell-off reflects several factors.

The company revealed this month that outspoken co-founder and CEO Alex Karp — who often takes retail investor questions on earnings calls — adopted a 10b5-1 trading plan for the maximum sale of 9.975 million shares of Class A common stock. The trading arrangement will last until Sept. 12, 2025.

A plan of this kind allows insiders of public companies to set up a schedule to sell shares in the company over a period of time.

The disclosure sent a signal to the bulls that Karp may view the stock as overvalued following a blistering 248% run-up over the past year.

Other Palantir insiders have also been aggressively selling stock, according to Yahoo Finance data.

Meanwhile, CNN reported that new Defense Secretary Pete Hegseth has ordered an 8% annual cut in defense spending for the next five years. This is a potential blow to Palantir, which relies heavily on government contracts. The stock's surge had been driven, in part, by expectations that the Trump administration would ramp up defense spending.

But amid all the buzz, Palantir quietly raised fresh red flags in its annual report — the same day Karp unveiled his new stock trading plan.

For one, Palantir's headcount grew by just 5% in 2024 after declining 3% in 2023. Over the past two years, the company has added only 98 employees, according to Jefferies tech analyst Brent Thill.

Second, on Feb. 12, the company's chief accounting officer, Heather Planishek, announced her decision to step down effective Feb. 24. The company's CFO, David Glazer, will assume her responsibilities on an interim basis.

And third, Palantir continues to overly rely on its biggest customers for business — its top three customers accounted for 17% of revenue in 2024.

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"The last time we saw such high magnitudes of [valuation] multiple expansion was during the COVID bubble when many of the high growth names (Snowflake, Crowdstrike, DataDog) benefited from multiple expansion. However, we are now in a more normalized macro environment, and we think any negative factors (decelerating growth, changing interest rates, AI hype turns, insider selling, etc.) may cause Palantir's multiple to further compress," Thill explained.