Most AI stocks fell sharply in November! The meme stock Palantir saw its largest drop in over two years, while NVIDIA fell 12%

The AI stock Palantir experienced a rollercoaster ride in November, hitting an all-time high at the beginning of the month before plummeting, ultimately falling 16% for the month, marking its worst monthly performance since August 2023. This decline was driven by investors selling off AI concept stocks due to valuation concerns. Meanwhile, well-known investor and "big short" Michael Burry increased his bets against the company, establishing a short position.

Palantir is headquartered in Denver. Its earnings and revenue for the third quarter significantly exceeded Wall Street expectations. Palantir also achieved over $1 billion in revenue for the second consecutive quarter. Additionally, the company secured several new deals this month, including a multi-year contract with PwC in the UK to accelerate local AI adoption and a collaboration agreement with aircraft engine maintenance company FTAI.

However, these positive developments did not alleviate the valuation concerns plaguing all AI-related companies. The excessive valuation worries still triggered a sell-off following Palantir's earnings report.

In a report to clients, Jefferies analysts described Palantir's valuation as "extreme" and suggested that investors could achieve better risk-reward ratios with AI stocks like Microsoft and Snowflake. Analysts at RBC Capital Markets expressed concerns about the company's "increasingly concentrated growth structure." Deutsche Bank stated that Palantir's valuation is "difficult to understand."

Adding fuel to the fire of the sell-off after Palantir's earnings report was the revelation that Burry was betting on declines in the stock prices of Palantir and NVIDIA. Burry is widely known for accurately predicting the 2008 housing crisis and for his portrayal in the film "The Big Short," and he later accused "hyper-scale cloud computing companies" of artificially inflating profits through accounting practices.

Palantir CEO Alex Karp took a high-profile stance, appearing twice on CNBC within a week to accuse Burry of market manipulation and labeling his actions as extremely malicious. "To think that chips and ontology are the targets you should short is simply insane."

Karp, who has long defended Palantir, did not miss the opportunity to "hit back at critics," stating in a letter to shareholders that the company is providing ordinary investors with opportunities to achieve returns that were previously only accessible to the most successful venture capitalists. During the earnings call, he said:

"Please turn on traditional television and see how unhappy those who didn't invest in us are. Enjoy it, grab some popcorn. They are crying. And we are making this company better every day, and we are doing it for this country and our allies."

Overall, investors aggressively sold off overvalued stocks in November, citing high valuations and potential "bubbles." This month, NVIDIA retreated over 12%, while Microsoft and Amazon fell approximately 5%. Quantum computing-related companies like Rigetti Computing and D-Wave Quantum saw their stock prices evaporate by more than one-third. The questions surrounding Palantir's valuation remain persistent, and this is not a new issue. Even after a significant pullback, the company's forward price-to-earnings ratio still stands at 233 times. In contrast, NVIDIA and Alphabet's expected price-to-earnings ratios as of Friday's close were approximately 38 times and 30 times, respectively.

Apple and Google's parent company Alphabet are the only stocks among the seven tech giants in the U.S. stock market that recorded gains this month