AI stocks took a beating yesterday as investors suddenly got cold feet about sky-high valuations in artificial intelligence companies. Palantir led the selloff with an 8% drop despite posting strong earnings Monday, while Nvidia also fell after "Big Short" investor Michael Burry revealed short positions against both AI darlings.
The AI boom hit a speed bump yesterday as investors suddenly questioned whether artificial intelligence companies are worth their astronomical valuations. Palantir bore the brunt of the selloff, plummeting 8% despite delivering a solid earnings report just Monday that should have sent shares soaring.
The data analytics company's forward price-to-earnings ratio of 254 has become a lightning rod for critics who argue AI stocks have gotten way ahead of themselves. For context, Nvidia - the undisputed king of AI chips - trades at a comparatively modest 35 times forward earnings. That's still rich by traditional standards, but it looks downright reasonable next to Palantir's nosebleed valuation.
Making matters worse, "Big Short" legend Michael Burry decided to pile on by revealing short positions against both Palantir and Nvidia in recent filings. Palantir CEO Alex Karp didn't take kindly to the move, calling it "bats--- crazy" and "market manipulation" during a heated appearance on CNBC's Squawk Box.
"The two companies he's shorting are the ones making all the money, which is super weird," Karp told CNBC, clearly rattled by Burry's bet against his company. The defensive tone suggests even AI executives are feeling pressure as the valuation party faces its first real test.
The contagion spread beyond Palantir to virtually every big tech name. All members of the so-called Magnificent Seven closed in the red except for Apple, which managed to eke out modest gains. Advanced Micro Devices got hit particularly hard after hours, dropping nearly 4% despite beating earnings and revenue expectations for Q3. The problem? AMD's margin guidance came in merely inline with estimates - apparently not good enough in this environment.
