PLTR, Michael Burry vs. Palantir: Is the Big Short Legend Right About This AI Defense Giant?

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 I strongly recommend reading this article all the way to the end; your money is precious, and knowledge is what protects it.

  1. Palantir has evolved into a flagship AI-and-defense stock, but its latest pullback exposed how vulnerable it is to questions about accounting quality, war-time ethics, and political risk.

  2. Michael Burry’s highly public short against Palantir, focused on aggressive adjustments and AI bubble-style valuation, crystallized broader skepticism and turned the stock into a litmus test for fundamentals versus hype.

  3. In my view, Palantir’s real risk lies in its dependence on government policy and regulation around defense and surveillance, so any position in the stock should be sized and timed as a high-beta, policy-sensitive trade rather than a blind AI bet.


1. Why Palantir Suddenly Became “Fair Game” for Shorts Again

The last big pullback in Palantir felt different. It wasn’t just a healthy dip after a parabolic AI rally; it coincided with:

  • High-profile investors publicly questioning Palantir’s accounting choices and non-GAAP metrics

  • A new round of “this is insanely overvalued” commentary from analysts and market commentators

  • Fresh controversy around its defense platforms, including an internal U.S. Army memo that reportedly described a joint battlefield communications system involving Palantir as “very high risk”

Layer on top of that a market that is already nervous about AI froth, and it’s not surprising that short interest climbed and “Palantir skepticism” became a mainstream stance again.

(chart: Palantir weekly price chart showing the 2023–2025 AI rerating and the sharp drops around major controversy headlines)

2. Quick Refresher: How Palantir Actually Makes Money

Before talking about the controversies, it’s worth remembering what Palantir is.

  • It builds data platforms (Gotham, Foundry, and newer AI products) that integrate and analyze massive datasets for governments and enterprises.

  • Roughly half of its revenue still comes from government customers, with the United States representing the majority of total sales.

On the government side, Palantir’s software is deeply embedded in:

  • Defense and intelligence work

  • Targeting and battlefield decision systems

  • Border control, immigration enforcement, and law enforcement analytics

Recent contracts underline this trajectory:

  • A large, multi-year U.S. Army deal worth several billions of dollars, consolidating and expanding Palantir’s role in the Army’s data and AI infrastructure

  • Additional funding and projects for AI-driven targeting and battlefield decision systems, which move Palantir closer to the technical core of modern U.S. military operations

In other words: this is not a generic “enterprise SaaS” name. This is a politically exposed defense and surveillance infrastructure stock that happens to trade under the AI label.

3. Controversy #1 – The Accounting Story: When AI Optimism Becomes Earnings

A big reason shorts have become louder is the way Palantir presents its profitability.

3-1. Heavy use of non-GAAP metrics

  • Palantir routinely strips out stock-based compensation (SBC) and other items to show stronger “adjusted” profits.

  • Critics argue that SBC is not some irrelevant noise; it’s a real cost that dilutes shareholders and should not be casually ignored just because it’s non-cash.

On top of that, detailed breakdowns from skeptics highlight how Palantir’s adjusted numbers benefit from:

  • Aggressive exclusions, where almost anything that hurts the income statement is pushed out of non-GAAP

  • Interest income and tax effects that can flatter bottom-line optics in certain quarters, making the growth story look smoother than it actually is

All of this fuels the narrative that Palantir’s “clean” profitability is more about financial cosmetics than a simple, straightforward P&L.

3-2. The SPAC hangover

During the 2021–2022 bubble, Palantir invested hundreds of millions of dollars into SPACs, often tying software deals to equity investments in highly speculative companies.

  • The company ultimately took significant losses on this SPAC portfolio as many of those companies collapsed or traded down heavily.

  • While Palantir officially wound down the program and says it is refocusing on its core software business, that episode damaged management’s credibility for more conservative investors.

From a short-seller’s perspective, SPACs + aggressive adjustments paint a picture of a management team that occasionally lets optimism drive financial decisions—and then uses non-GAAP metrics to smooth over the consequences.

3-3. Enter Michael Burry – When the “Big Short” Aims at Palantir


This is where Michael Burry comes in and pours gasoline on an already controversial fire.

  • Regulatory filings in late 2025 showed that Burry’s fund, Scion Asset Management, held large put option positions on Palantir and Nvidia.

  • Depending on how you measure the notional value, those puts represented a very high share of his disclosed portfolio, effectively turning his fund into a concentrated bet against the AI darlings of this cycle.

His argument was not just “these stocks are expensive.” Burry has been openly critical of:

  • AI-related accounting in general – especially the way some companies stretch depreciation schedules for expensive infrastructure and smooth earnings over time

  • The broader AI bubble narrative, where future dreams are capitalized today while real economic returns remain uncertain

  • For Palantir specifically, the combination of rich valuation, heavy SBC, and aggressive adjustments that make earnings look cleaner than they are on a strict GAAP basis

The story became even louder because of the public clash between Burry and Palantir’s CEO, Alex Karp:

  • After Burry’s short positions became public and Palantir sold off, Karp publicly framed his bet as “a bet against AI” and implied that Burry was out of touch with what Palantir was actually building.

  • Burry fired back, mocking Palantir’s ability to read a basic 13F filing and taking a shot at the company’s whole “ontology” and epistemology rhetoric.

He later hinted that he had already exited or altered his Palantir short by the time some of the media noise peaked, but the damage was already done:

  • Retail traders suddenly had a simple narrative: “Even the guy from The Big Short thinks Palantir’s numbers don’t add up.”

  • That narrative amplified the existing concerns about accounting and valuation and helped turn Palantir into one of the most emotionally charged tickers in the AI space.

Whether you agree with Burry or not, his involvement turned Palantir from a niche controversy into a front-page example of AI euphoria versus hard-nosed fundamentals.

4. Controversy #2 – Ethics, War, and the Politics of AI

The second layer of controversy is not about spreadsheets; it’s about what Palantir’s software actually does in the real world.

Multiple investigations and opinion pieces have raised concerns about:

  • The company’s role in government surveillance, immigration enforcement, and predictive policing

  • Its growing role in autonomous targeting and battlefield intelligence, especially as AI becomes more deeply integrated into weapons and command systems

  • Its involvement with controversial conflicts and security operations, including work that has drawn criticism from human rights organizations

At the same time, CEO Alex Karp has openly framed AI and data dominance as a geopolitical arms race, arguing that the U.S. and its allies must win this contest against China and other adversaries.

This kind of rhetoric energizes some investors (“we’re buying the Lockheed of AI”) but alienates others who see Palantir as a war-profiteering platform in software form.

Co-founder Peter Thiel’s more extreme public comments on politics and technology add fuel to the perception that the company’s leadership is ideologically charged, not neutral.

For a business whose revenue is mostly government-driven, that matters. Policy backlash can quickly turn into:

  • Stricter rules on surveillance and military AI

  • Contract scrutiny by legislatures and oversight bodies

  • Reputational risk for politicians who continue to support Palantir’s expansion

5. Controversy #3 – “Very High Risk” on the Battlefield

Recently, Palantir’s core technical reputation has also been questioned.

An internal U.S. Army memo about a battlefield communications and data network built with Palantir and other defense-tech partners reportedly flagged the system as “very high risk” due to:

  • Inability to properly control data access

  • Weak activity tracking

  • Unverified software security

  • A high number of severe vulnerabilities in third-party apps on the platform

The memo suggested the system could allow undetectable adversarial access—exactly the kind of scenario you don’t want from battle-space software. Palantir and its partners have pushed back, arguing that the assessment was incomplete or based on an early version, but the headline damage is already done.

For an AI-defense name that sells itself as “mission critical” and “battle tested,” seeing your joint system labeled “very high risk” by the Army is not a trivial PR issue. It strengthens the short narrative that:

“Palantir’s story is great marketing + political momentum, but the tech and security controls may not fully live up to the hype.”

6. Your View: Government Policy as the Real Key Variable

You mentioned that you see Palantir as heavily dependent on government policy, and I think that’s exactly the right lens.

Look at how many of its key drivers are policy-sensitive:

  • Defense budgets & priorities

    • A decade-long Army deal means revenue visibility, but it also means dependency on future budget cycles, election outcomes, and shifting geopolitical priorities.

  • AI and surveillance regulation

    • If Western governments tighten up rules for military AI, predictive policing, or cross-agency data sharing, Palantir’s runway could narrow.

    • Palantir itself is trying to influence AI policy, urging regulators to focus on “applications” rather than underlying models—clear evidence it knows how crucial regulation is to its business.

  • Ethical & human rights pressure

    • NGOs, journalists, and lawmakers constantly question whether Palantir’s tools enable human rights abuses or mass surveillance.

    • If this pressure crystallizes into binding rules or contract cancellations, the valuation narrative can change overnight.

  • Export controls & alliances

    • Palantir wants to sell more AI software to U.S. allies in Europe and Asia. That path is shaped by export controls, local privacy laws, and each country’s stance on U.S. big-tech influence.

In that sense, Palantir is almost like a leveraged ETF on “Western defense + permissive AI policy + strong national security budgets.” If any of those three starts to roll over, the downside can be brutal.

7. Valuation, Short Sellers, and Two Extreme Scenarios

Current criticism is not just about what Palantir does, but what investors are paying for it.

  • Many analysts and commentators have called the stock extremely overvalued, pointing to price-to-sales and earnings multiples far above typical software and defense peers—even after recent corrections.

  • Short sellers have seized on this, publishing detailed breakdowns arguing that Palantir’s adjusted earnings are overstated, its SBC is a ticking dilution bomb, and its AI hype has outrun fundamentals.

  • Michael Burry’s highly public short only reinforced this narrative, giving skeptics a simple symbol: “If even the Big Short guy is worried, maybe we should look twice at the numbers.”

From here, I see two broad paths:

  1. Bullish scenario – “grows into it”

    • Defense and AI contracts keep compounding.

    • Regulatory pressure stays manageable.

    • SBC trends down as a share of revenue; GAAP profits start to look clean.

    • In that world, Palantir doesn’t need a higher multiple; it just needs to hold its current one while earnings catch up.

  2. Bearish scenario – “repricing of a narrative”

    • Policy winds shift (AI rules, a defense-spending pause, or a major contract controversy).

    • One of the accounting or security criticisms sticks and changes how the market views Palantir’s quality.

    • The stock de-rates from a “premium AI defense” multiple to something much closer to a normal software/defense blend; a 30–60% drawdown from elevated levels is absolutely possible in that scenario.

Your idea that the relationship between Palantir and government policy is the core of the story is, in my opinion, more important than any single quarterly report or price target.

8. What This Means for Investors and Traders

If you’re thinking about Palantir—long or short—here are the practical checkpoints I’d watch:

  1. Contract flow vs. headlines

    • Track big new government deals, renewals, and expansions against controversy cycles. If contracts keep growing even during negative headlines, that’s a bullish sign for the real underlying demand.

  2. Regulatory trajectory

    • Watch AI and surveillance legislation in the U.S., EU, and U.K. closely. Palantir is more exposed than most “AI stocks” because its primary use cases sit right at the intersection of war, policing, and intelligence.

  3. GAAP vs. non-GAAP convergence

    • Don’t just read the adjusted numbers. Watch whether GAAP operating margins and GAAP EPS start to look healthy without heroic adjustments and massive SBC.

  4. Stock-based compensation and dilution

    • If SBC as a percentage of revenue and market cap stays elevated, long-term investors are silently paying the bill. If management genuinely reins it in, that removes a key short argument.

  5. Security and reliability track record

    • Any future memo or report labeling Palantir systems as insecure or “very high risk” is a serious warning sign for a company whose main selling point is mission-critical reliability.

  6. Reading Michael Burry correctly

    • Burry is not a crystal ball, but he is a useful stress test: if you can read his arguments about accounting and valuation and still feel comfortable owning Palantir, at least you’re making an informed decision instead of simply buying the AI hype.

  7. Position sizing and time horizon

    • Given the volatility and headline risk, I would treat Palantir as a high-beta, policy-sensitive AI defense trade, not a risk-free compounder. The range of outcomes is wide enough that position size and holding period matter more than usual.

You don’t have to buy the most optimistic narrative or the most apocalyptic short report. But if you ignore the policy and controversy layer—and the kind of fundamental questions that investors like Michael Burry are raising—you’re effectively trading this stock blind.

This article is for informational and educational purposes only and does not constitute financial or investment advice; any decisions you make with your money are entirely your own responsibility.

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