Shares of software analytics provider Palantir Technologies Inc. (PLTR) plummeted 16% in November, marking their worst monthly performance since August 2023, as investors sold off AI-related stocks amid valuation concerns. Meanwhile, prominent investor Michael Burry increased his bets against the AI sector and shorted the company.

Palantir had a strong start to November. The company reported third-quarter earnings that surpassed Wall Street expectations, achieving $1 billion in revenue for the second consecutive quarter. However, concerns over high valuations triggered a sell-off post-earnings.

Jefferies analysts described Palantir's valuation as "excessive" in a client note, suggesting better risk-reward opportunities in AI-related stocks like Microsoft and Snowflake. RBC Capital Markets analysts raised concerns about the company's "increasingly concentrated growth model," while Deutsche Bank called its valuation "unfathomable."

Another factor driving the post-earnings decline was the revelation that Burry had shorted both Palantir and AI chipmaker Nvidia. Burry, famous for predicting the 2008 subprime mortgage crisis (as depicted in *The Big Short*), later accused mega-cap tech firms of artificially inflating earnings.

Palantir CEO Alex Karp accused Burry of "market manipulation," calling his actions "astonishing." Karp stated, "The idea that you should short companies related to chips and ontologies is just absurd."

Despite the steep drop, Palantir secured multiple business contracts in November, including a multi-year partnership with PwC to accelerate AI adoption in the UK and a collaboration with aircraft engine maintenance firm FTAI. However, these announcements failed to ease broader market concerns about AI sector valuations.

Investors broadly offloaded high-priced AI stocks, citing overvaluation fears and bubble risks. In November, Nvidia fell over 12%, while Microsoft and Amazon declined around 5%. Quantum computing firms like Rigetti Computing and D-Wave Quantum lost more than a third of their market value.

Apple and Alphabet were the only "Magnificent Seven" stocks to post gains in November. Yet, skepticism over Palantir's valuation persists—and it's not a new issue. Even after the steep drop, the stock traded at a forward P/E ratio of 233x as of last Friday, compared to Nvidia's 38x and Alphabet's 30x.