AI stocks mostly plunged in November! Meme stock Palantir experienced its biggest drop in over two years, Nvidia fell 12%.

AI concept stock Palantir experienced a roller-coaster ride in its share price in November. After hitting a record high at the start of the month, it took a sharp downturn and ultimately fell by 16% for the month, marking its worst single-month performance since August 2023. The decline was due to investors selling off AI stocks over valuation concerns. Meanwhile, well-known investor and “Big Short” Michael Burry increased his bearish bets on AI trading, taking a short position in the company.

Palantir is headquartered in Denver. Its third-quarter earnings and revenue both far exceeded Wall Street expectations. Palantir also achieved over $1 billion in revenue for the second consecutive quarter. Additionally, Palantir secured several new deals this month, including a long-term contract with PwC in the UK to accelerate local AI adoption, and a partnership agreement with aircraft engine maintenance company FTAI.

However, the positive news failed to dispel valuation concerns that trouble all AI-related companies. Overblown valuation worries still triggered a sell-off following Palantir's financial report.

In a report to clients, Jefferies analysts described Palantir’s valuation as “extreme,” and believed investors could achieve better risk-reward profiles in AI stocks like Microsoft and Snowflake. Analysts at RBC Capital Markets expressed concerns about the company’s “increasingly concentrated growth structure.” Deutsche Bank said Palantir’s valuation is “hard to comprehend.”

The sell-off after Palantir’s earnings release was further fueled by reports that Burry was betting on declines in the stock prices of Palantir and Nvidia. Burry is widely known for accurately predicting the 2008 housing crisis and for his portrayal in the film “The Big Short.” He later accused “hyperscale cloud computing firms” of artificially inflating earnings through accounting practices.

Palantir CEO Alex Karp stepped up publicly, appearing on CNBC twice in one week to accuse Burry of market manipulation and condemned his actions as extremely bad. “Thinking chips and ontology are what you should be shorting—this idea is simply insane.”

Karp, who has long defended Palantir, did not miss the chance to “fire back at critics.” In his letter to shareholders, he wrote: the company is giving ordinary investors opportunities to achieve returns that were previously only accessible to the most successful venture capitalists. On the earnings call, he said:

“Turn on traditional television and see how unhappy those who didn’t invest in us are. Enjoy it, grab some popcorn. They’re crying. Meanwhile, every day we’re making this company better, and we’re doing it for this country and its allies.”

Across the sector, investors aggressively sold off high-valuation stocks in November, citing high valuations and a potential “bubble.” This month, Nvidia fell by more than 12%, while Microsoft and Amazon dropped about 5% each. Quantum computing-related companies such as Rigetti Computing and D-Wave Quantum saw their stocks evaporate by more than a third.

Questions surrounding Palantir’s valuation remain persistent, and this is not a new issue. Even after a major correction, the company’s forward price-to-earnings ratio is still as high as 233 times. By comparison, Nvidia and Alphabet’s expected P/E ratios as of Friday’s close were around 38 and 30 times, respectively.

Apple and Google’s parent Alphabet were the only two among the seven US tech giants to record gains this month.

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