A Falling Stock Price Prompts Palantir to Rebut Security Flaws Claims

Palantir Technologies Inc. saw its stock tumble more than 8% on Friday after a report alleged that the company’s battlefield communications system developed in partnership with Anduril Industries Inc. contained serious security flaws. Both companies quickly pushed back, calling the claims outdated and inaccurate.

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In a statement issued Friday, Palantir said that all issues highlighted in the report, originally published by Reuters, had already been resolved. The report cited a U.S. Army memo from September raising concerns about Anduril’s Next Generation Command and Control (NGC2) prototype a system developed with key subcontractors Palantir and Microsoft Corp.

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According to Palantir, any problems identified were “immediately mitigated,” and “no vulnerabilities were found in the Palantir platform.”

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The market reaction marked Palantir’s sharpest intraday drop since August, interrupting what had been a strong multiyear rally. The company’s shares have surged more than 2,000% over the past three years, fueled by enthusiasm over its government contracts and expanding role in defense technology.

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Tech stocks broadly weakened Friday after reports that the White House was considering federal workforce reductions, adding further pressure to the sector.

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The controversy stems from a September 5 Army memo reported by Breaking Defense and Reuters, which detailed vulnerabilities within the NGC2 system. According to the memo, the system’s communication networks were susceptible to “insider threats, external attacks, and data spillage.” The document cited “critical deficiencies in fundamental security controls, processes, and governance” that raised concerns about the system’s resilience before corrective actions were taken.

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However, both Palantir and Anduril emphasized that these concerns were quickly resolved as part of the normal development process. “The issues referenced in the report have already been addressed,” Palantir said. “Our systems remain secure and compliant with the highest standards of defense technology.”

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Anduril echoed that message in its own statement, saying, “The recent report reflects an outdated snapshot, not the current state of the program. NGC2 is moving through a standard iterative development process, where potential risks are identified early, resolved quickly, and the system is strengthened before deployment.”

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In comments published by Breaking Defense, Lieutenant General Jeth Rey of the Army’s Network Cross-Functional Team underscored that identifying and resolving vulnerabilities is a key part of testing advanced defense technology.

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“This is a new capability coming in,” Rey said. “We found a risk, and we mitigated it right out of the gate.”

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That approach finding flaws early to reinforce the system before full deployment reflects how the military typically integrates cutting-edge digital tools into its operations. Experts note that this process is especially critical in projects like NGC2, which aim to modernize how battlefield information is shared and managed across the U.S. Army’s command structure.

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The Army has not yet issued a formal response to the companies’ statements, and representatives declined to comment further when contacted by reporters.

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The incident highlights the challenges facing tech companies that have become increasingly central to the U.S. military’s modernization efforts. Palantir, known for its data analytics platforms, has become one of the Pentagon’s most visible software contractors, securing major deals with the Army, Air Force, and Special Operations Command.

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The company’s growing influence has drawn attention from both investors and policymakers. While Palantir’s software has proven valuable in intelligence and battlefield decision-making, its reliance on government contracts has made it vulnerable to shifts in defense spending and political scrutiny.

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Analysts note that cybersecurity risks are a recurring concern in such high-stakes projects. “When working on systems that handle classified data, even a small vulnerability can raise alarm,” one defense industry analyst said. “But what’s key is how quickly those issues are resolved and whether the system proves reliable under stress.”

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Founded by Palmer Luckey, the creator of Oculus VR, Anduril Industries has rapidly positioned itself as a major player in defense innovation. The company specializes in autonomous systems, drones, and battlefield AI tools and like Palantir, it’s working to modernize the Pentagon’s technology infrastructure.

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The NGC2 system, which integrates data from multiple military sources to improve command and control efficiency, represents one of Anduril’s largest collaborations to date. By combining Anduril’s hardware expertise with Palantir’s analytics capabilities and Microsoft’s cloud technology, the system aims to deliver faster and more secure battlefield communication.

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Despite the recent controversy, analysts say the partnership remains strategically important for all parties involved.

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Friday’s selloff underscores how sensitive defense technology stocks can be to security reports and media scrutiny. Although Palantir dismissed the claims as outdated, investors reacted swiftly to the headlines before the company’s clarification gained traction.

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Still, many analysts remain optimistic about Palantir’s long-term prospects, citing its deep government ties, expanding commercial footprint, and growing role in AI-driven defense systems.

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As one market strategist noted, “Palantir’s value lies not just in its current contracts, but in its ability to shape the future of defense intelligence. Short-term noise aside, the company’s trajectory remains firmly aligned with global demand for secure, data-driven military infrastructure.”

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With cybersecurity now a top priority across the defense sector, Palantir’s quick response to the report could help reassure investors that it remains committed to protecting its platforms and its reputation in one of the most demanding industries in the world.

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