Why Palantir's 25% Drawdown Hasn't Fixed the Real Problem

The Stock’s Weakness Masks a Deeper Issue

Palantir Technologies (NASDAQ: PLTR) recently took a beating in the market, sliding 25% from its November peak. The catalyst? Prominent hedge fund manager Michael Burry—famous for his prescient call on the 2008 housing crisis—went on record with a massive short bet, holding 66% of his $1.4 billion portfolio in put options against the company. The move sparked debate across Wall Street, with CEO Alex Karp firing back at critics, dismissing short-seller skepticism as deliberate market manipulation. But beneath the noise lies an uncomfortable truth: the stock’s decline hasn’t addressed the fundamental disconnect between Palantir’s operational excellence and its astronomical valuation.

A Genuinely Strong Company in AI

It’s important to acknowledge what Palantir does exceptionally well. The company built its reputation creating sophisticated analytics tools for U.S. intelligence agencies, with its Gotham platform proving instrumental in counterterrorism initiatives. Transitioning to commercial markets, the Foundry platform now supports critical decision-making across finance, healthcare, manufacturing, and retail sectors. When the company launched its AIP (Artificial Intelligence Platform) in April 2023, it introduced an enterprise-grade large language model orchestration layer that helps organizations move AI from concept to full-scale deployment—a capability that sets it apart from competitors.

The proof is in the metrics. Palantir has now delivered nine consecutive quarters of accelerating revenue growth. Independent analysts, including those at Forrester Research, have formally recognized the company as a leader in machine learning infrastructure and AI decision-making platforms. Chief Revenue Officer Ryan Taylor articulated the competitive advantage clearly: “The real opportunity and our unique capability lies in moving from prototype to production.” For any organization wrestling with AI implementation, that’s a meaningful edge.

Where the Math Falls Apart

Here’s the challenge: excellence doesn’t justify infinite valuations. When Karp made his recent comments about market manipulation, Palantir was trading at an eye-watering 125 times sales. Even after the 25% correction, the company now trades at 102 times sales—still the single most expensive stock in the S&P 500 by a significant margin. The nearest competitor, AppLovin, sits at 32 times sales. Put another way: even if Palantir shares crashed another 66% from current levels, it would still hold the title of most expensive stock in the index by this valuation metric.

To contextualize the absurdity: almost no software company in history has maintained a multiple above 50 times sales for extended periods. The few that have commanded premium multiples were either in temporary bubble conditions or eventually capitulated to gravity. Palantir’s current pricing assumes a degree of perpetual perfection that no software business has ever actually delivered.

The Valuation Disconnect Karp Won’t Acknowledge

When the CEO appeared on CNBC dismissing short sellers’ thesis as “market manipulation” and described the bearish case as “bat s*** crazy,” he was conflating two distinct questions. One is legitimate: does Palantir build sophisticated, mission-critical software? Absolutely yes. The other is an entirely different question: is the stock price justified relative to cash flows and growth? Those are not the same inquiry. Conflating product quality with valuation reasonableness is a logical misstep, even for someone as intelligent as Karp.

Short sellers aren’t claiming Palantir’s technology is inferior. They’re saying the market is pricing in unrealistic future returns. Those are compatible positions.

The Investment Reality

Palantir is genuinely well-positioned in an industry expected to expand rapidly over the coming decade. Management’s capital deployment and technical architecture have created defensible competitive advantages. There’s a credible argument that financial results will remain robust in 2026 and beyond.

None of that changes the investment math. When the risk-reward profile tips so heavily toward downside protection over upside potential, the rational move is avoidance or minimal exposure—positions that apply even to excellent businesses. The 25% decline has provided some relief from peak absurdity, but not enough to shift the equation.

For current investors, this remains a situation demanding discipline: hold if you must, but acknowledge the concentrated risk. For prospective investors, the calculus is simpler. Excellent company execution does not automatically translate to excellent stock returns. Valuation remains the biggest headwind to forward performance.