Secretary of Defense Pete Hegseth told senior Pentagon leaders to develop plans to cut defense spending by 8% each year for the next five years, according to an internal memo, the Washington Post reported Wednesday. The Pentagon’s 2025 budget is about $850 billion. The spending cuts are in tandem with the expected firings of thousands of probationary workers in the Department of Defense this week, facilitated by the Elon Musk–championed Department of Government Efficiency. 

Palantir reported fourth-quarter 2024 earnings earlier this month, posting a better-than-expected $828 million in revenue—a 36% year-over-year increase—which Karp attributed to the company’s investment in generative AI.

Before this week’s drop, Palantir’s stock had catapulted 585% since early last year and soared nearly 50% in 2025 alone, not only because of its bet on AI, but also on its steadfast relationship with the U.S. Around half of its revenue comes from contracts with the American government. During President Donald Trump’s first term, Palantir was buoyed by an $800 million contract with the U.S. Army in 2019, and through former President Joe Biden’s term, the company provided technologies to crack down on illegal immigration and those seeking asylum in the U.S. 

Immigration and Customs Enforcement and Citizen and Immigration Services spent $7.8 billion on tech from 263 companies to address immigration since 2020, according to a New York Times review of nearly 15,000 contracts. Palantir received about $1 billion from the government during that time. Trump’s immigration policy—catalyzed by a barrage of 10 executive orders his first day in office ramping up border security—would indicate this pattern of spending continuing into his second term.

Palantir did not respond to Fortune’s request for comment.

Palantir’s relationship with the U.S. government

Built on the ideology that a Western nation should have technological and military superiority over the rest of the world, Palantir counted the CIA as its first—and only—customer in its early years between 2005 to 2008. Karp’s book The Technological Republic: Hard Power, Soft Belief, and the Future of the West, released Tuesday, furthers this ideology, calling on Silicon Valley to show more patriotism and forge deeper ties with the U.S. government.

Despite billions of dollars in U.S. government contracts and hopes of U.S. technological supremacy, Karp has not always seen eye-to-eye with Trump, diverging from Palantir cofounder Peter Thiel’s support of the president. Karp supported former Vice President Kamala Harris in the 2024 presidential election. He has qualified Palantir’s contracts with ICE, saying the company does not do business with the agency’s enforcement and removal operations division that carries out many of the country’s deportations. 

Karp, however, has offered his support for DOGE and Musk’s aggressive cost-cutting tactics—even as the advisory’s efforts may have clipped the wings of one of its customers. Palantir announced this month plans to integrate Grok, the Musk-owned xAI chatbot, into its AI platform.

“What the progressive left should be doing is saying, ‘Okay, Elon, you’re clearly the most qualified person in the world to do something like this. We want a dialogue with you about what you’re doing, how you’re doing,’” Karp told CNBC on Wednesday. “I don’t believe that’s happened.”