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Why Is Palantir Stock Down Ahead of Earnings?

Investors in Palantir Technologies (NYSE:PLTR) and PLTR stock certainly have been on a bumpy ride of late. Since seeing this stock approximately double from the beginning of the year to the $45 level, shares of PLTR now trade under $19, at the time of writing.

Today, PLTR stock is down nearly 5% ahead of earnings. The company is set to report earnings tomorrow, and this earnings season has been relatively unfriendly to investors. Tech stocks are dipping, as many consider a speculative selloff as healthy. Given where valuations are today, even blowout earnings haven’t been enough to move the needle on many mega-cap stocks.

Accordingly, many companies like Palantir have sold off prior to earnings in anticipation of such a move.

That aside, it appears there’s other concerns investors are pricing in right now. Let’s dive into one of the most pertinent concerns on the minds of Palantir investors right now.

Potential Culling of JEDI Contract Bearish for PLTR Stock

Today, it was reported that the U.S. Department of Defense is considering ending its JEDI cloud-computing project. This move appears to have shocked PLTR investors, driving a significant portion of today’s outsized move.

This JEDI contract is one that, on its face, has little to do with Palantir. Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) have been the key bidders on this contract, and there’s been some litigation brought up as a result of how the contract was doled out. Accordingly, investors may view this dispute as exogenous. However, given Palantir’s core business model, there are reasons for concern.

Specifically, Palantir’s business model is based mainly on gaining government contracts for its services. A range of large contracts have been granted to Palantir in recent years. These contracts make up a majority of the company’s revenue. Accordingly, investors bullish on Palantir are also bullish on the company’s ability to not only keep its existing contracts, but grow its ongoing relationship with the Pentagon and other U.S. government agencies.

Today’s move by the Pentagon to consider ending this contract is bearish for all such consulting firms interacting with this agency. It appears investors are starting to get the jitters when it comes to the portfolio of business PLTR has right now.