Palantir ( PLTR ) stock lost 10% on Wednesday, losing ground quickly in the final hour of trading after a Washington Post report said the Trump administration has told the Pentagon to plan for large budget cuts over the next five years.

The Washington Post reported that Defense Secretary Pete Hegseth sent a memo to senior leaders within the Pentagon and US military to slice 8% from the defense budget every year over the next five years, equating to potentially tens of billions of dollars in cuts.

"Our budget will resource the fighting force we need, cease unnecessary defense spending, reject excessive bureaucracy, and drive actionable reform including progress on the audit," Hegseth wrote in a memo seen by the Post.

Some 17 categories would reportedly be exempt from the cuts, including US border operations and munitions acquisitions, the Post wrote.

Palantir did not immediately respond to Yahoo Finance's request for comment.

Palantir makes AI software used for surveillance by the US government . More than half of the company's revenue in its most recent quarterly earnings report came from global government contracts, driven by increasing spending from the US Department of Defense.

The Financial Times reported in December that Palantir is also in talks with competitors, including Anduril, to form a consortium that will bid for US government contracts.

Palantir stock has been on a tear in 2025, rising more than 48% year to date, even with Wednesday's decline, and currently stands as the second-best performing stock in the S&P 500.

Over the past year, the stock has gained more than 350%.