Key Highlights

● Palantir tumbled into correction territory, a week after setting its Oct 9 record high.

● Roughly $34 billion to $35 billion in market value was erased in a single session.

● A reversal in software valuations drove the retreat, with 41 of 45 basket stocks falling.

● Meta, Tesla, IBM and SAP report Oct 21, and the Fed decides Oct 28.

From record to correction

Palantir Technologies (NASDAQ:PLTR) tumbled on Friday, among the biggest decliners in software on the S&P 500. Several market reports described a steep drop, while one report put the stock at $185.29 late in the session, so reports differed somewhat on the size of the move.

The slide pushed Palantir into correction territory relative to its Oct 9 record high, according to the reports. The selloff erased roughly $34 billion to $35 billion in market value in a single session.

The drop was attributed to a reversal in software valuations. The stock had set a record high only a week earlier, on Oct 9, before investors began trimming technology names.

Software sold off late

The software sector came under heavy pressure, especially late in the session. A report said 41 of 45 stocks in a software basket fell, erasing roughly $130 billion in value. ServiceNow (NYSE:NOW) slid, Salesforce (NYSE:CRM) fell, Snowflake (NYSE:SNOW) tumbled, and Datadog (NASDAQ:DDOG) and Zscaler (NASDAQ:ZS) both slid, according to market reports.

The trigger was a broader debate over artificial intelligence. Market commentary said investors have shifted from asking what AI can do to asking how it will be financed. Debt-funded AI infrastructure names were hit hardest, but the questions spilled into software companies whose valuations rest on expectations of AI-driven growth.

A head investment strategist at the Franklin Templeton Institute said in published comments that "pressure across the long end of the curve acts as a valuation headwind for risk assets."

What Palantir does

Palantir builds software platforms that help governments and companies analyze large amounts of data, and its AI Platform has been a major growth driver. The company counts U.S. defense and intelligence agencies among its largest customers, alongside a growing roster of commercial clients.

Market commentary also cited a published report that Democrats could gain subpoena power after the upcoming midterm elections, a political backdrop for a company with large government contracts. The commentary did not suggest any specific action involving the company.

Tech drags the market lower

The S&P 500 fell 84.62 points to 7,659.44 after opening higher, with its steepest losses in the final hour. The Nasdaq Composite dropped 572.99 points to 26,140.03, and the Dow Jones Industrial Average slipped 175.28 points to 52,002.41. All but seven of the 75 technology stocks in the S&P 500 closed lower, according to market data.

Chipmakers fared no better: all 30 members of the PHLX Semiconductor Index fell. Investors moved into energy, utilities, consumer staples and health care instead. The VIX volatility index jumped 3.53 points to 19.99.

One market commentator wrote, "That is a change in character, and it's another reason the leaders no longer look like a safe haven." For the week, the Nasdaq had its worst showing since June.

Big Tech Earnings Could Steer Palantir

Big Tech earnings start next week and could set the tone for AI-linked software. One analyst said "upcoming Big Tech earnings will still need to demonstrate that the enormous investment in AI is translating." The Federal Reserve's next rate decision is Oct 28, and the PCE inflation report follows Oct 29. Meta (NASDAQ:META) and Tesla (NASDAQ:TSLA) report on Wednesday, Oct 21, along with IBM (NYSE:IBM) and SAP (NYSE:SAP).