Data mining specialist Palantir Technologies (PLTR -0.97%) picked up right where it left off in 2024. Last year, Palantir stock was the top performer in the S&P 500 index, as well as the third-best stock in the Nasdaq-100. So far in 2025, things haven’t changed much for the artificial intelligence (AI) software player — as shares have rocketed by an eye-popping 74% as of this writing (June 10).

While the momentum doesn’t appear to be slowing down at all for Palantir, my prediction is that the stock will plummet during the second half of the year.

Let’s explore some of the trends fueling Palantir stock right now, as well as some interesting breadcrumbs that could support my idea that shares are headed for a sell-off.

Should you dump your Palantir position right now? Read on to find out.

Palantir’s valuation is sky high, and…

There is a lot that can be gathered from the chart below. The obvious takeaway is that Palantir’s price-to-sales (P/S) multiple of 105 is significantly higher than any of the software growth stocks in this peer set. However, the bigger idea from the analysis below is that Palantir’s valuation continues to expand.

PLTR PS Ratio data by YCharts

These dynamics imply that investors are buying Palantir stock in droves. The deeper question I’ve been asking is: Who are the investors that keep chasing Palantir’s momentum?

Based on some recent clues, I think I might have an answer.

…smart investors are taking profits

Ark Invest CEO Cathie Wood is one of the original Palantir bulls on Wall Street. Shortly following the company’s IPO in late 2020, Wood appeared on financial news programs on a regular basis — constantly talking about her excitement around Palantir and the company’s ability to disrupt legacy software providers. While this was a great source of indirect PR for Palantir, Wood shocked the investment world when she dumped her stake sometime in 2022.

Following these moves, Wood started accumulating a position in Palantir stock once again in 2023. Per the graph in the prior section, Ark Invest’s position in Palantir is sitting on a healthy profit considering shares now hover around all-time highs. Wood has taken note of these trends, and the famous tech investor is once again reducing her exposure to Palantir.

Wood isn’t the only notable personality on Wall Street that’s choosing to take profits in Palantir, though. Billionaire investor Stanley Druckenmiller of the Duquesne Family Office completely exited Palantir during the first quarter, per the fund’s most recent 13F filing. Similar to Wood, Druckenmiller has also been in and out of Palantir stock in recent years.

I view the decision to reduce exposure to Palantir stock right now as a prudent one. While the selling from Wood and Druckenmiller does not necessarily imply a bearish view of Palantir at all, I think trimming exposure and taking profits in a stock that seems overbought makes sense.

My prediction is that more institutions will follow in the second half of 2025

Palantir’s valuation is historically high, even compared to what investors witnessed during the peak bubble days of the dot-com boom. I think a rising number of institutions will come to the opinion that Palantir’s current valuation trajectory is not sustainable given how far the stock has already run.

PLTR Shares Increased by Institutional Investors data by YCharts

The graph above illustrates the number of shares of Palantir stock that have increased and decreased by institutional investors over the last year.

As the trends indicate, there was pronounced institutional buying of Palantir stock during the last few months of 2024. At the same time, the orange line — which indicates institutional selling — also steadily climbed during late 2024 and ultimately converged with the purple line (buyers) at the start of 2025. Right now, shares bought by institutions remains higher than shares sold, which implies large investors are net buyers of Palantir stock for the time being.

Throughout this year, both buying and selling activity has decelerated — as indicated by the relative flattening of both lines. These trends suggest that while institutions remain cautiously optimistic about Palantir, there could be further selling on the horizon as the narrowing gap between buyers and sellers becomes more obvious.

As such, I think the current momentum fueling Palantir stock could tempt more institutions to dump their shares — leading to a plummeting share price and much-needed valuation normalization.

Ultimately, I don’t think dumping your position in Palantir is entirely necessary. As a long-term investor, it’s important to hold on to your highest-conviction winners. However, I do think taking some gains off the table could be a smart decision right now.

Adam Spatacco has positions in Palantir Technologies. The Motley Fool has positions in and recommends Cloudflare, CrowdStrike, Datadog, MongoDB, Palantir Technologies, ServiceNow, and Snowflake. The Motley Fool has a disclosure policy.