The U.S. Department of Defense plans to cut spending, and "AI star" Palantir plummets

On Wednesday local time, according to The Washington Post, U.S. Secretary of Defense Pete Hesgeth has requested senior military leaders to develop a plan to cut the defense budget by 8% annually over the next five years.

Hesgeth has asked for the reduction plan to be formulated by February 24, with the Trump administration aiming to cut actions at the southern U.S. border, modernization of nuclear weapons and missile defense, procurement of one-way attack drones, and other munitions.

However, Hesgeth still requested continued "support agency" funding for several major regional headquarters, including the Indo-Pacific Command, Northern Command, and Space Command, but the list did not include European Command, Central Command in the Middle East, or Africa Command. Hegseth wrote:

"President Trump’s directive to the Department of Defense is clear: achieve peace through strength... We must act urgently to restore warrior spirit, rebuild our military, and re-establish deterrence. Our budget will support the combat power we need, stop unnecessary defense spending, reject excessive bureaucracy, and promote practical reforms, including auditing progress."

The Washington Post stated that if these cuts are implemented, it would mark the largest budget contraction initiative at the Pentagon since the mandatory budget cuts imposed by Congress took effect in 2013.

Following the announcement, U.S. defense stocks came under pressure, with major defense contractor Palantir's stock price falling 10% in response, and continuing to decline in after-hours trading.

Analysts believe that this budget reduction plan may lead to the cancellation or scaling back of some defense projects, thereby impacting related contractors and significantly affecting companies like Palantir that rely on government contracts.

Bloomberg Intelligence analyst Mandeep Singh stated, for Palantir, any cuts to the U.S. defense budget could be very sensitive, especially since its U.S. government business has grown over 40% in the past two quarters, with government business accounting for more than half of Palantir's total revenue.

However, some experts believe that even in the face of budget cuts, investments in key technology areas such as artificial intelligence and data analytics may remain relatively stable, which could somewhat mitigate the negative impact on companies like Palantir.

Palantir has always maintained close ties with the U.S. government, and this week, the company's CEO Alex Karp published a new book calling for Silicon Valley to show more patriotism and urging tech companies to establish closer ties with the United States