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There might not be anything as a “free lunch” in the stock market, but for investors who still believe in the long-term AI growth story, AI data firm Palantir (NASDAQ:PLTR) certainly looks tempting now that it’s dropped like a rock despite clocking in some very strong third-quarter results.
Undoubtedly, shares of Palantir find themselves in a bit of a tough spot right now, as expectations and valuation appear to have caught up with the company. Add a major bear in Dr. Michael Burry, a man made famous from The Big Short, who publicly announced he bought put options on Palantir, and it certainly seems like Palantir stock is getting too difficult to own, no matter how well the company is doing, or what its CEO, Alex Karp, has to say.
Undoubtedly, Alex Karp has been quite vocal of late, and while he may be absolutely right on all fronts about the opportunity to be had and how wrong Dr. Burry is to bet against his company, there’s still no guarantee that the stock will react in a positive fashion now that momentum has turned negative in a big way. Though the stock got a little bit of relief in recent sessions, shares remain down more than 21% from their all-time highs.
High risks, high rewards when it comes to AI
Karp recently said that the U.S. must “absorb a lot of risk” in the AI race. And while there’s tremendous risk that comes with investing heavily in AI to stay ahead of the competition, there’s also the potential for incredible rewards. For Palantir, the big question is whether investors are already anticipating the colossal rewards. And for the skeptics, including Burry, the big question is how hard shares of Palantir could fall if a quarter were to come up well short of expectations.
Undoubtedly, Palantir had a negative reaction to some pretty incredible results just a few weeks ago. If analysts really start raising the bar, it’ll get harder to pass, and there’s a fear of what the implications for the stock will be once the AI trade were to really get rocky. While it feels like the November AI dip is over after a few solid recovery sessions, I do think that having Palantir sit on the sidelines during the recovery days speaks to the magnitude of fear and uncertainty surrounding the name.
Could it be Burry’s bearish position? Or simply fear that Palantir could be one of the heaviest hit names once the AI correction intensifies? It’s hard to say, but I think there’s still “perfection” that’s priced into the shares, even after a brutal bearish decline.
A lot of risk going into 2026
While there’s a lot to look forward to in the new year, including margin gains and a further expansion of its impressive customer base, I think it’ll be tough to break out of a descent now that sentiment on AI has shifted so suddenly.
Pending a real shocker that catches analysts off guard, I think Palantir might be more of a wait-and-see kind of play, given the vulnerability to a further correction in the AI trade. Either way, I’m not so sure the average investor can stomach the risks that come with buying Palantir, especially if the technical picture really begins to break down.
As Michael Burry kicks off his newsletter, Cassandra Unchained, you can count on more commentary about Palantir as well as the broad AI trade. And as vocal and convincing as Karp has been in the defense of Palantir, I do think it will be tough for investors to go against Burry, especially if he has more to share about his biggest shorts in the AI era. While I would be more upbeat on Palantir stock on a dip, the Burry bearish bet is too severe to overlook, in my opinion.