Palantir’s share prices suffered a sharp drop after renewed interest in the AI boom was raised by investor Michael Burry. He published an in-depth newsletter casting doubt on the sustainability of current AI valuation models, citing rapidly increasing infrastructure costs and declining profitability of data centers. This decline highlights rising tension in the sector, as optimism for AI dims due to price concerns.
Burry, known for predicting the 2008 financial crisis, has amplified the impact of his analysis among investors. In recent statements, he revised previous ratings on Palantir and equated the company to broader systemic risks in the AI industry.
Although his long note was unpublished, the message was clear: the AI boom faces strong headwinds from mounting infrastructure expenses and unexpectedly fast declines in data-center costs. These financial strains may undermine the payoff for companies betting on heavy computing investments.
The market responded quickly, with Palantir’s stock dropping over six per cent on the announcement date, showing how AI-related stocks remain sensitive to negative news.
AI investment Circle
The main issue that Burry is preoccupied with is the AI investment cycle. The range of his critique is not limited to Palantir alone but is applied to the general setup of the AI industry. He argues that excessive spending on data centers and computational capability cannot provide the returns in terms of profitability over the long term that investors expect.
Technological change is fast becoming a reality, and the servers and special chips are becoming outdated; hence, firms should upgrade their hardware faster than expected, and the cost is increasing faster than the returns.
This dynamism exposes itself to recreating the historic technology cycles, where the hype in the beginning led to the rampant investment of capital before profitability, and demand was realized. It has significant implications for investors, as numerous AI companies have valuations pegged on future potential long-term expansion.
Conclusion of DA Davidson over turns the bear case
The market response notwithstanding, analysts at DA Davidson had a positive opinion about Palantir. According to the firm, it had carefully examined every part of the newsletter prepared by Burry, and it had no material reason to cause any concern about the fundamental actions of the company.
However, it confirmed once again that the present value of the shares of Palantir already implies a premium, hence justifying its neutral rating. DA Davidson continuously supports the role of Palantir in the market of AI, and claims that the company is the only company that enables its clients to adopt AI in their physical systems that are critical to their missions, rather than offering a generic tool.
The analysts suggest that the key distinguishing factor in Palantir is its practical, government-focused, and large organizational approach, working to turn complicated data into operational decisions that can be acted upon, which is a significantly different offer to the traditional software offerings.
The analysts wondered how Palantir could experience such faster growth in comparison to the large software companies, despite failing to provide significant incremental customer value. The fact that Palantir has experienced a sustained high growth rate and high cash-flow margins was cited as evidence that they are performing.
