Palantir Faces Correction Amid Strong AI Growth and Market Skepticism

November 7, 2025 at 07:24 UTC

5 min read

Palantir stock price correction visualization with AI sector growth and valuation concerns

Key Points

Palantir Technologies reported a strong Q3 2025 with 63% revenue growth to $1.18 billion and doubled adjusted EPS to $0.21, driven by surging demand for its Artificial Intelligence Platform (AIP).
Despite robust financials and raised guidance, Palantir’s stock entered a technical correction, falling over 10% from its record high of $207.52, amid concerns over its extremely high valuation and broader AI sector sell-off.
Investor Michael Burry took a bearish stance by purchasing $912 million in put options on Palantir, citing bubble concerns, while analysts like Wedbush’s Dan Ives remain bullish on Palantir’s expanding commercial and defense contracts.
Other AI-related stocks such as AppLovin and Coherent posted strong earnings and positive outlooks, contrasting with mixed views on legacy tech and healthcare stocks like Pfizer and Henry Schein.

Palantir’s Q3 Earnings Highlight Accelerated AI-Driven Growth

Palantir Technologies delivered a robust third-quarter 2025 performance, reporting revenue of $1.18 billion, a 63% increase year-over-year, and adjusted earnings per share of $0.21, more than doubling from the prior year. This growth was fueled primarily by the rapid adoption of its Artificial Intelligence Platform (AIP), which enables businesses and government clients to integrate generative AI into their operations for enhanced productivity and decision-making. The company’s U.S. commercial segment surged 121% year-over-year to approximately $397 million, while U.S. government revenue rose 52% to about $486 million. Palantir closed a record $2.8 billion in total contract value (TCV), up 151% from the previous year, and expanded its customer base by 45% to 911 clients. The company also reported a net dollar retention rate of 134%, indicating strong customer loyalty and expansion. Palantir raised its full-year 2025 revenue guidance to $4.4 billion and adjusted operating income forecast to approximately $2.15 billion, reflecting confidence in sustained growth. The company’s adjusted operating margin reached a record 51% in Q3, underscoring improving profitability driven by economies of scale and strong sales execution.

Stock Correction and Valuation Concerns Amid AI Sector Volatility

Following its record intraday high of $207.52 on November 3, 2025, Palantir’s stock experienced a sharp decline, falling over 10% and entering a technical correction phase. By November 7, shares traded near $175, down approximately 15.6% from the peak. This pullback occurred despite the company’s strong earnings beat and raised guidance, reflecting market concerns about Palantir’s lofty valuation metrics. The stock trades at an exceptionally high forward price-to-earnings ratio exceeding 400 and a price-to-sales ratio above 130, levels that many investors consider unsustainable. The broader AI sector also faced selling pressure, with ETFs tracking AI technology declining 4-5% in the same period. Market participants are increasingly focused on valuation discipline after a prolonged AI rally, with the Shiller CAPE ratio for the S&P 500 reaching levels not seen since the dot-com bubble. Palantir’s CEO, Alex Karp, defended the company’s value proposition, emphasizing the unique culture and product strength that traditional models fail to capture. Nonetheless, analysts caution that the premium valuation leaves little margin for error, and some investors may await a more attractive entry point.

Divergent Investor Views: Michael Burry’s Bearish Bet Versus Analyst Optimism

Notably, famed investor Michael Burry disclosed a significant bearish position on Palantir, purchasing approximately $912 million in put options, signaling expectations of a stock price decline. Burry’s move has reignited debate over whether the AI sector, including high-flying names like Palantir and Nvidia, is in a bubble poised to burst. Burry’s fund, Scion Asset Management, holds a concentrated portfolio with few stocks and uses options to express bearish views selectively. In contrast, prominent analysts such as Dan Ives of Wedbush Securities maintain a bullish outlook on Palantir, highlighting its explosive growth in the U.S. commercial market and expanding defense contracts. Ives raised Palantir’s price target to $230, citing the company’s pivotal role in national security and AI innovation. He projects Palantir could evolve into a trillion-dollar company within two to three years as its commercial business scales. Market strategists note that while Palantir’s valuation is rich, its growth trajectory and contract wins justify investor interest, though caution remains warranted given the stock’s volatility.

Broader Market Context: AI Sector Strength Contrasts with Mixed Tech and Healthcare Sentiment

While Palantir and other AI-focused companies like AppLovin and Coherent reported strong earnings and positive outlooks, the broader market exhibits mixed sentiment. AppLovin posted a 68% year-over-year revenue increase to $1.41 billion and raised its share repurchase authorization to $3.3 billion, with its stock showing resilience amid market volatility. Coherent also beat expectations with 17% revenue growth and strong guidance, driving an 18% stock surge despite a general tech sell-off. Conversely, legacy healthcare stocks such as Pfizer and Henry Schein face challenges; Pfizer’s stock has declined over 50% from its peak amid concerns about growth prospects and drug pricing pressures, while Henry Schein’s valuation and market performance remain under scrutiny despite recent positive earnings. Market commentators emphasize the importance of diversification and risk management, suggesting balanced exposure to AI innovation alongside more stable sectors like industrials, utilities, and financials. The ongoing debate over AI’s boom versus bubble status continues to influence investor behavior, with valuation metrics and macroeconomic factors shaping near-term market dynamics.

Key Takeaways

Palantir’s strong Q3 results and AI platform adoption underscore its rapid growth and expanding commercial footprint.
The stock’s recent technical correction reflects market concerns over its high valuation amid broader AI sector volatility.
Investor opinions diverge sharply, with Michael Burry betting against Palantir while analysts remain optimistic about its long-term potential.
Other AI-related companies like AppLovin and Coherent show robust earnings, contrasting with mixed sentiment in traditional tech and healthcare sectors.