Burry vs. Karp: Who Will Be Right About Palantir Stock’s Next Move?

Shares of Palantir (NASDAQ:PLTR) have been scorching hot in recent years, and it’s continued to defy the laws of gravity. But after a spectacular quarterly earnings report, perhaps the laws of gravity are starting to come into effect. There wasn’t much in that last quarter to get too bearish about. AI demand is still red-hot, and the AI Platform (AIP) remains a compelling growth driver.

Still, it seems like the AI bubble talk is getting louder by the day, and, with that, we might have an environment where it takes more than a strong beat and raise; it might take a blowout quarter. Arguably, a blowout might no longer be able to do it when it comes to the hyper-growth plays that some investors may have acquired with less regard for valuation.

Palantir Has Boomed. Will the Momentum Reverse?

In any case, Palantir stock has more than tripled in the past year while gaining more than 860% in the past two years. Such a run has created profound wealth for the retail crowd, but the big question is what will happen once the AI trade runs out of steam. All the AI bubble chatter itself, I think, is not troubling enough to justify running to the hills.

However, with a legendary investor in Dr. Michael Burry (from The Big Short) recently buying up a significant amount of put options against shares of Palantir (and another AI darling in Nvidia (NASDAQ:NVDA), the generational hyper-growth stock has found itself in a tug-of-war between the bulls and the bears.

In prior pieces, I remarked on how difficult it was to time a bursting of any bubble.

And while Palantir shares may be overheated and overdue for a painful drawdown at some point, it’s unclear whether Dr. Burry will be proven right with his very risky bearish bets. Wedbush Securities’ Dan Ives still sees Palantir as having more room to run and thinks Dr. Burry is “dead wrong” to go short. I think it’s hard to go against Ives and Karp.

Palantir Seems Wildly Expensive. That Doesn’t Make It Smart to Bet Against

While I do think Dr. Burry is on the right to be concerned about the valuation and excessive enthusiasm surrounding the market’s biggest AI winner, I wouldn’t dare follow in his tracks with put options, given the force that causes the rollover might not show up in a timeframe that allows a bearish bet to dive into the money. Palantir might be overdue for a big correction or perhaps something a bit more painful, but unless the timing is right, one still stands to lose big money.

Palantir CEO Alex Karp defended his company in a televised interview, going as far as to refer to Burry’s short as “bat– crazy.” Given the positive long-term momentum riding behind shares of Palantir, it certainly seems reckless to bet against the name. What if it turns out AI stocks are partying like it’s 1996 rather than 2000?

Of course, as Dr. Burry gets more vocal about his bearish views of the AI companies, which go far beyond Palantir and Nvidia, perhaps he’ll be able to convince the masses to rethink their bullish views of the AI trade.

More Bearish Commentary From Burry

With Burry recently accusing some AI hyperscalers of artificially boosting earnings by potentially overestimating the useful life by “understating depreciation,” there are big questions that some big-name Mag Seven firms might need to address. For now, it seems like the market is unbothered by such accusations and Dr. Burry’s bearish bets on Nvidia and Palantir.

I don’t know if the wave of volatility hitting Palantir stock will lead to a more severe decline that allows Dr. Burry to make big money from his puts. Either way, I do think his brave bearish bet will either make him look like a genius or, as Karp not”bat– crazy.”

The Bottom Line

Time will tell how long Dr. Burry holds on for a sure rollercoaster ride that’s sure to go in both directions over the coming weeks. Even if Burry is right about his short thesis, there’s always the chance that markets stay “irrational” longer than Dr. Burry can handle the pain of hanging onto his puts. Whenever making a short bet, timing can make all the difference. With that in mind, I do think that Karp may very well be “dancing around” should Burry’s short bet find itself going sideways.