Michael Burry's Brutal Take On Palantir: 'A Sand Castle Supported Only By AI Applications Narrative'

Days after detailing how Elon Musk's deal with Nvidia, supported by a $3.5 billion debt from Apollo, is putting the retirement funds of Americans at risk, The Big Short's Michael Burry came down heavily on Palantir Technologies again in a new late Tuesday Substack post.

Palantir shares fell 5.2% on Tuesday and another 1.7% during premarket hours on Wednesday despite global equity indexes rising amid the AI rally. Burry believes the stock price could fall further in the near term.

'It is a sand castle, supported for now by the AI applications narrative,' he wrote on Substack.

After a massive rally in 2025 on the AI hype and robust quarterly results, Palantir's stock appears to have lost that momentum this year amid the broader software stocks sell-off despite its strong positioning in the defence sector.

Burry had disclosed earlier he had placed major bets against Palantir Technologies as well as AI leader Nvidia. In his latest Substack post, Burry highlighted the 'head-and-shoulders' type pattern on Palantir's stock chart, reflecting the 'waxing and waning of extremely bullish psychology.'

He could be indicating that Palantir's investor interest could be simmering, but the stock remains at a make-or-break level. Investors should note that a head-and-shoulders top typically forms after a robust rally when buyers eventually lose momentum. In case the stock price breaks below the pattern's 'neckline' support level, technical traders generally see it as a sell signal and potential for a much larger decline.

Burry had earlier warned of extreme overvaluation of US megacap tech stocks driving the AI-fueled stock rally, adding that these companies use accounting tricks to make their balance sheets appear stronger than they actually are.

AI Companies are 'Understating Depreciation'

Earlier this year, Burry had accused US AI companies of 'understating depreciation' to protect their bottom lines. He highlighted that these companies are maintaining the value of their AI hardware by artificially inflating the 'useful life' of chips and servers, hence keeping expenses off current income statements.

'Now you are engaging in accounting tricks to hide expenses, to protect earnings. You will be tortuously adjusting your earnings in new and sinister ways,' Burry had mentioned. 'A question I have for $ORCL, $GOOG, $META, $MSFT, $AMZN, $NVDA, $CAT, and all the rest, "When does the spending for AI data center buildout actually end?"'

Burry also asked the AI leaders in a separate X post: 'It is consuming all your cash flow, you are borrowing, you are financing in ways you never have, apparently because it is so urgent, because it scales? But if it scales, when does it end?'

Overall, Burry believes Mag 7 stocks could considerably overestimate their earnings by an average of 24% between 2026 and 2028. According to the investor, Oracle could inflate earnings by up to 62%, followed by Amazon at 31%, Meta at 30%, and Microsoft at 16%. Burry had argued that in case these companies used a 2.5-year depreciation cycle for AI chips and servers, their reported profitability would vanish completely.

Overall, Burry believes that 'asset quality is important in the long run,' adding that a $50 billion write-off could appear insignificant against a $3 trillion market cap today, but 'it will loom larger should it come to that.'

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