Palantir Technologies Inc. (NYSE: PLTR) CEO Alex Karp cautioned that the cost of developing artificial intelligence (AI) technology in certain sectors may outweigh its benefits.

His remarks come as investors grow increasingly concerned about whether billions spent on AI initiatives will generate adequate returns.

During an interview at Yahoo Finance's Invest conference, when asked about the controversial "AI bubble," Karp stated: "From Palantir's perspective, the AI market can be divided into two categories. One involves using AI—or 'augmented intelligence'—to handle basic tasks, but these tasks aren't complex enough to meaningfully impact a company's revenue or profit margins."

Karp added: "Anyone familiar with the situation can argue that while this market segment is vast, it may not generate sufficient value to justify the actual costs of large language models (LLMs) or their implementation."

Palantir's AI software is widely used in corporate and government sectors, including supply chain management and military target identification.

He further explained: "What we observe in real-world operations—and this isn’t an opinion, but a fact—is a niche within this vast AI market, which I call 'practical AI.' This type of AI either transforms battlefield dynamics, corporate profit margins, or revenue streams." He emphasized that the core of such AI lies in "quantifiable outcomes"—whether life-and-death security results or rapid, measurable improvements in profitability or revenue that allow companies to capture value within their existing structures.

In recent years, the AI development boom has fueled optimism, driving tech stocks to record highs. Morgan Stanley predicts that "hyperscale" tech firms—including Meta (META), Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOGL)—will spend $470 billion in 2025 and $620 billion in 2026 on AI-related infrastructure like data centers.

However, prominent short-sellers like Jim Chanos and Michael Burry, along with executives such as JPMorgan CEO Jamie Dimon, Amazon founder Jeff Bezos, and OpenAI CEO Sam Altman, have warned that the market has entered "bubble territory," signaling overvalued stocks and a potential sell-off.

While Palantir's stock has surged 141% in 2025, recent earnings reports triggered investor concerns over its high valuation, leading to a pullback.

Though Karp believes Palantir will dominate the AI market by delivering value to businesses and governments, he described the consumer-facing AI sector as "exceptionally weak and deteriorating."