If you’re an ETF investor who’s been along for the Palantir Technologies Inc (NASDAQ:PLTR) hype ride, Tuesday was likely a derailment.

Even after a blowout first quarter earnings report and a sparkling forecast, the stock plummeted more than 14% after hours and almost 12% on Tuesday morning, taking a few PLTR-heavy ETFs down with it.

The culprit? A valuation that may be pushing even the most elastic of market imaginations.

ETF Fallout: When One Stock Sneezes

Three ETFs with significant Palantir exposure found themselves nursing bruises after Tuesday’s swoon:

Roundhill PLTR WeeklyPay ETF (BATS:PLTW): Meant to surf Palantir’s waves, this thematic ETF dropped a painful 18% on Tuesday.

First Trust US Equity Opportunities ETF (NYSE:FPX): Down close to 3%, this ETF took the jolt, too. With Palantir as its top holding with a 10% weightage, even the wider growth exposure couldn’t soften the blow.

Global X Defense Tech ETF (NYSE:SHLD): Also off about 2.1%, even with Palantir included in a strong slate of defense tech plays. The ETF thesis is still intact — defense budgets are rising globally — but valuation concerns outweighed tailwinds, at least for the day.

Tejas Dessai, head of research at Global X ETFs, is bullish on the theme overall, saying that we are “in the early innings of a generational investment cycle in global defense.”

With the U.S. committing $1 trillion annually to defense and geopolitical tensions not so much looking like fireworks, but rather like bonfires, the industry’s runway appears lengthy, he noted. Palantir is positioned alone in this environment. From battlefield logistics powered by AI to intelligence analysis, it’s at the nexus of Silicon Valley ingenuity and Pentagon-sized paychecks. That’s precisely the reason SHLD and its owners are hanging on, even though the ride’s got turbulence.

The Paradox of Powerhouse Performance and Price Panic

Let’s get the scorecard straight: Palantir’s first quarter revenue of $883.86 million beat expectations, rising 39% year-over-year. U.S. commercial revenue surged 71%, customer base grew and the company now projects full-year revenues of as much as $3.90 billion — all while having $5.4 billion in the bank. Not bad for the alleged “Messi of AI,” as Wedbush’s Dan Ives called it.

Also Read: Palantir Is A ‘Retail-Driven Story,’ Says Top Analyst As PLTR Stock Falls 9% In After-Hours: ‘Not A Single Institutional Investor…Talks About This’

But the market wasn’t having it. Why? Perhaps because the stock is listed at a P/E (TTM) ratio above 560x — a figure that would make even the most optimistic tech bulls wince.

Even with Palantir’s assurances of positive GAAP operating income each quarter this year, worries that a lot of future growth is already priced in are casting long shadows. As Jefferies’ Brent Thill said, solid fundamentals are one thing, but a 65x multiple to revenue is another creature altogether.

Valuation Sky High, but Sector’s Not Coming Down

Palantir’s fundamentals are good, its prospects are bright, and its contribution to AI and defense cannot be replicated — but the price is where the market throws up its hands. ETFs such as PLTW, FPX and SHLD, with their various degrees of Palantir exposure, provide a means to bet on the tale — just don’t anticipate them being resistant to sentiment shocks.

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