Palantir is the latest victim of investors' sky-high earnings expectations

Palantir stock dropped Tuesday even after it delivered strong Q3 results.

Shares of the data softare firm are struggling against wider tech jitters and shifting investor sentiment.

Views on its results are mixed on Wall Street, even as the company continues to grow.

Investors are hammering Palantir stock on Tuesday, dumping shares even after the AI-powered data software firm delivered strong third-quarter earnings.

Shares of the company fell as much as 7% to $165.25 before rebounding to end the day down about 2.5%. Palantir beat Wall Street's estimates on key metrics in the quarter, and reported that commercial revenue exceeded revenue from government contracts for the first time. Total revenue of $2.31 billion blew past analysts' expectations.

However, a sharp slowdown in commercial bookings compared to the second quarter rattled investors' view of the stock. The firm reported year over year commercial bookings growth of 11%, compared to 153% booking growth in the prior quarter.

"Analysts blamed a deceleration in US commercial bookings for the selloff, which has taken the stock down to support around $165," David Morrison, senior market analyst at Trade Nation, said. "These are all indications that there's some fragility spreading across the AI-adjacent trade."

It's the latest example of a hiccup in an otherwise rosy earnings report derailing a high-flying tech stock. Palantir's move is emblematic of just how high investors' expectations have risen, to the point where shares sell off at the first sign of trouble.

Other tech giants know well already, with hyperscalers and other AI builders under intense scrutiny when it comes to things like capex spending , which can overshadow other bright spots in earnings reports.

The tech trade has also weakened broadly in recent weeks. Volatility throughout Asian markets , spanning China, Japan, and South Korea, has led to heightened concern that the AI bubble may be about to pop .

Luke Lango, chief technology analyst at InvestorPlace noted that while his team is still bullish on Palantir, the company doesn't just have to prove its doing well — it has to continuously justify its premium valuation.

"Palantir's rearview looks spectacular, while the view through the windshield got a little foggier after bookings cooled sharply from last quarter's record," Lango said. "For most stocks, that's a footnote. For a stock priced for perfection, it's the headline bears have been waiting for."

Others have highlighted the threat that rising competition could pose, particularly as compute costs continue rising .