Palantir Earnings-Induced Market Turbulence and AI Sector Valuation Reassessment

This analysis is based on the TheStreet’s Stocks & Markets podcast published on November 5, 2025, featuring Jay Woods, Chief Market Strategist at Freedom Capital Markets, discussing market turbulence that began with Palantir Technologies’ (PLTR) recent earnings report [0]. The conversation centered on Woods’ perspective that opportunity may be emerging following the significant run-up in Palantir and other technology stocks.

The event follows an unusual market reaction where Palantir reported exceptionally strong Q3 2025 results but experienced an 8% stock decline on November 4, triggering broader AI sector reassessment and erasing over $500 billion in tech market value [3][4]. This analysis examines the fundamental strength versus valuation concerns driving the current market dynamics.

Palantir delivered exceptional Q3 2025 results that fundamentally exceeded expectations:

• Revenue Growth:
  $1.18 billion (+63% YoY), significantly beating estimates of $1.09 billion [1][5]
• Profitability:
  Adjusted EPS of $0.21 versus forecasts of $0.17 [1][5]
• Guidance Upgrade:
  Raised full-year 2025 revenue guidance to 53% YoY growth [5]
• U.S. Commercial Momentum:
  121% YoY growth indicating strong domestic expansion [5]

Despite these strong fundamentals, the market reaction was sharply negative, with the stock declining 8% on November 4 to $190.74, followed by continued weakness to $187.90 on November 5 [0][1][2]. This divergence highlights growing valuation concerns across the AI sector.

The primary driver of the selloff appears to be extreme valuation multiples:

• Current P/E Ratio:
  405.49x with market cap of $427.33B [0]
• Forward P/E:
  254x (compared to Nvidia’s 35x) [1]
• Year-to-Date Performance:
  +149.90% despite recent decline [0]

Analysts characterized the situation as “nosebleed valuations got in the way” despite strong operational execution [4]. Mizuho specifically noted the risk-reward profile as a “big challenge” even while acknowledging the strong quarter [1].

The Palantir reaction triggered sector-wide valuation reassessment:

• AI ETF Pressure:
  Global X Artificial Intelligence & Technology ETF (AIQ) experienced significant selling after hitting all-time highs [3]
• Peer Stock Declines:
  Major AI names including Nvidia, Meta, and AMD saw declines following the Palantir selloff [4]
• Market Value Impact:
  The tech sell-off erased more than $500 billion in market value in a single day [3]

This suggests the market is conducting a broader reassessment of AI stock valuations rather than reacting to company-specific fundamentals.

• Michael Burry’s Short:
  The “Big Short” investor revealed put options worth approximately $912 million against Palantir, representing about 13% of his portfolio [4][6]
• CEO Response:
  Alex Karp called this “market manipulation” and defended the company’s performance [1][2]

• Cathie Wood’s Ark Invest:
  Sold 38,338 shares on November 3 (earnings day), reducing exposure ahead of the valuation dip [7]
• Analyst Actions:
  Post-earnings, B of A Securities maintained Buy while UBS, Mizuho, Baird, and Goldman Sachs maintained Neutral ratings [0]

The current market dynamics represent a broader valuation reality check for AI stocks. While Palantir’s fundamentals remain strong with 63% revenue growth and raised guidance, the market is signaling that even exceptional growth may not justify current multiples. This creates a “good company, bad stock” scenario where operational excellence conflicts with elevated valuation expectations.

The selloff indicates a significant shift in market psychology toward AI investments. After months of unbridled optimism, investors are now applying more rigorous valuation scrutiny. The fact that strong earnings triggered a selloff suggests the market had priced in perfection and is now recalibrating expectations.

The divergence between institutional actions (Burry’s large short position, Wood’s selling) and maintained analyst ratings creates uncertainty about fair value. This institutional positioning suggests professional disagreement about appropriate valuation levels, potentially increasing volatility.

With the stock trading below key psychological levels after hitting a 52-week high of $207.52 on November 3 [0], technical factors may exacerbate fundamental concerns. The break below $190 support could trigger additional selling from momentum traders and technical funds.

• Valuation Compression:
  Current P/E of 405x suggests significant downside if growth expectations moderate [0][1]
• Sector Rotation:
  Continued outflows from AI-focused investments could pressure multiples across the sector [3][4]
• Short Interest Pressure:
  High-profile short positions may create additional selling pressure and negative sentiment [1][6]

• Growth Sustainability:
  Concerns about narrow support from U.S. enterprise demand [1]
• Market Concentration:
  66.3% of revenue from U.S. market creates geographic concentration risk [0]
• Competitive Pressure:
  Major cloud providers may increase competition in enterprise AI solutions

• Valuation Reset:
  Current levels may offer better risk-adjusted entry points for long-term investors if fundamentals remain strong
• Strong Fundamentals:
  63% revenue growth and 121% U.S. commercial growth demonstrate operational excellence [5]
• Cash Generation:
  Robust cash generation with current ratio of 6.43 provides financial stability [0]

• Position Sizing:
  High volatility suggests smaller position sizes with wider stop-losses
• Catalyst Timing:
  Next catalyst likely Q4 earnings in February 2026, providing time for valuation reset
• Correlation Management:
  High correlation with broader AI sector increases portfolio concentration risk

• Q3 2025 revenue of $1.18B (+63% YoY) beating estimates [1][5]
• Adjusted EPS of $0.21 exceeding $0.17 forecasts [1][5]
• Raised full-year 2025 revenue guidance to 53% YoY growth [5]
• U.S. commercial revenue growth of 121% YoY [5]

• Current P/E of 405.49x with market cap of $427.33B [0]
• Forward P/E of 254x compared to Nvidia’s 35x [1]
• Year-to-date performance of +149.90% despite recent decline [0]

• 8% stock decline on November 4 despite earnings beat [1][2]
• Broader AI sector selloff erasing $500B+ in market value [3][4]
• High-profile short position from Michael Burry worth $912M [4][6]
• Institutional selling from Cathie Wood’s Ark Invest [7]

• 52-week high of $207.52 on November 3 [0]
• Current trading at $187.90 (-1.49% day-over-day) [0]
• Technical support levels at $180-$185 being monitored [0]

The current situation reflects a classic market conflict between strong fundamental execution and elevated valuation expectations. While the company’s operational performance remains exceptional, the market is conducting a necessary valuation reassessment across the AI sector. Decision-makers should monitor institutional flow data, short interest evolution, and Q4 execution versus raised guidance as key indicators for the next phase of this valuation cycle.