Is Palantir Overvalued? Stock Drops 10% on Michael Burry’s Bearish Bet
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
This episode of ProfG Markets explores the fallout from Michael Burry's massive short position against Palantir, despite the company's impressive earnings beat. The legendary investor behind "The Big Short" placed nearly $1 billion worth of put options against Palantir shares, causing the stock to drop over 10%. (03:03) The episode also covers Wall Street's reaction to Zohran Mamdani's victory in the NYC mayoral election, examining whether business leaders will follow through on threats to leave the city.
- Main theme: How market sentiment and narrative can override strong fundamentals, as seen in both Palantir's valuation concerns and NYC's political shift
Speakers
Ed Elson
Host of ProfG Markets and producer for Prof G Media. He leads daily market analysis and conducts interviews with industry experts on finance, technology, and business trends.
Gil Luria
Head of Technology Research at D.A. Davidson, a financial services firm. Luria specializes in analyzing software companies and technology valuations, providing institutional research and market insights.
Liz Hoffman
Business and Finance Editor at Semafor, previously a senior finance reporter at The Wall Street Journal. She covers Wall Street, corporate America, and the intersection of business and politics with extensive experience reporting on major financial institutions.
Key Takeaways
Exceptional Performance Doesn't Always Protect Against Market Volatility
Palantir delivered spectacular earnings results, beating expectations across all metrics with 63% revenue growth and 50% operating margins. (05:41) Despite this outstanding performance, the stock fell over 10% simply due to news of Michael Burry's short position. This demonstrates that when valuations become detached from fundamentals—trading at 300 times earnings and 125 times sales—even great companies become susceptible to negative sentiment and news flow regardless of their operational excellence.
Individual Investors Can Drive Market Dynamics More Than Institutions
Gil Luria noted that Palantir's price appreciation has been disproportionately driven by individual investors rather than institutional ones. (08:08) These retail investors believe in Palantir's long-term mission and are willing to hold through extreme valuations, similar to what happened with Tesla 10-15 years ago. This shift in market dynamics means traditional Wall Street valuation models may be less relevant when passionate retail investors dominate the shareholder base.
Successful Shorts Require Exceptional Patience and Timing
Michael Burry's success with the 2008 housing crisis often overshadows the reality that many investors lost money trying to short that bubble too early. (09:56) Luria emphasized that "there were a lot of people that were short the real estate market one way or another and lost everything." The key to Burry's success was his ability to hang on long enough for the market to correct, something that requires not just being right about the direction but also having the resources and conviction to wait for vindication.
Business Leaders' Threats Often Exceed Their Actions
Despite months of threats from New York business leaders about leaving if Mamdani won, the reality appears different. (24:56) Major firms like JPMorgan just opened a massive new headquarters in Manhattan, representing a huge bet on the city's future. As Liz Hoffman noted, these are "human capital businesses, so they gotta be where the talent is." The disconnect between public threats and actual capital allocation decisions reveals that business continuity often trumps political preferences.
Narrative and Sentiment Can Override Fundamental Analysis
Both stories illustrate how powerful narratives can move markets and influence behavior more than underlying fundamentals. Palantir's AI narrative supports extreme valuations despite traditional metrics suggesting overvaluation. (05:01) Similarly, the "Atlas Shrugged" narrative of business leaders leaving NYC captured attention but may not reflect actual intentions. Understanding and monitoring these narratives becomes crucial for investors and business leaders navigating volatile markets and political environments.
Statistics & Facts
- Palantir trades at almost 300 times earnings and 125 times sales, making it the highest sales multiple in the S&P 500. (04:14) This extreme valuation makes the stock highly susceptible to negative sentiment despite strong fundamentals.
- Michael Burry's firm disclosed put options on about 5 million Palantir shares worth almost $1 billion, representing a massive bet against the AI company. (03:09)
- New York City operates with a $120 billion budget and employs 300,000 people, roughly equivalent to JPMorgan Chase's workforce. (20:57) This scale demonstrates the complexity of running the city that business leaders question Mamdani's ability to manage.
