'Ephemeral illusion': why is Burry expecting a 66% collapse in Palantir shares?
The iconic shortstop believes Alex Karp's company will repeat the fate of the dot-com era stars, losing its capitalization and falling victim to a takeover bid
Michael Burry previously bet against AI solutions developer Palantir / Photo: Unsplash / Salvador Rios
Famous investor Michael Burry, famous for betting against the mortgage market before the 2008 crisis, has published the second part of his investigation into Palantir's activities on his blog. While previously he analyzed the overall business model, the investor has now moved on to a detailed analysis of the annual report (10-K).
Burry's verdict is that Palantir is not a technology leader, but a "consulting company riding out the AI hype bubble," and its revenue will inevitably start to decline in the long run. The investor predicts Palantir will suffer the fate of dot-com era stars Razorfish and DiamondCluster, which ran into difficulties after the bubble collapsed and soon changed owners. He believes that when the euphoria subsides, Palantir will be taken over at a relatively low price and its capitalization will fall from the current $320 billion to well below $100 billion. According to an intrinsic value calculation that the investor made based on the annual report, the fair price of Palantir shares is only $46. This means that the current quotes are overvalued by 66%, and Burry believes that it is only a matter of time before they return to their real value. Last year, he opened a position on Palantir's falling stock, which company CEO Alex Karp called "crazy."
What is Burry criticizing Palantir for?
1. The "death spiral" of accounts receivable
Burry points out a disturbing pattern: in nine of the last 12 quarters, Palantir's accounts receivable (AR) has grown faster than revenue. That means the company is capturing sales on paper much faster than it's getting actual money for them. The waiting period for payment has increased nearly 2.5 times, from 35 days in 2020 to 85 days by the end of 2025.
The investor sees a particular danger in the concentration of debt: one secret "Customer A" accounts for 26% of all unpaid invoices. Comparing the figures, Burry discovered that this customer brings in less than 10% of revenue, but owes Palantir about $150 million. This anomaly creates a critical dependency: if the customer refuses to pay, the company will have to recognize a loss, which will instantly nullify quarterly profits.
"If 26% of your accounts receivable are concentrated in the hands of one client who knows that you are a publicly traded company, trumpeting your success and record profits, he has enormous power over you. He knows very well that writing off such a sum would be an unacceptable luxury for you. Therefore, such a client can dictate his terms: demand lower prices or increased deferral of payments, and Palantir will be forced to agree. And it is not necessary to have a 26% stake to gain such leverage - for example, 15% of the entire "accounts receivable" would be sufficient
2. The magic of adjusted earnings
Burry details the mechanism that allows Palantir to regularly report outperformance of Wall Street forecasts. According to him, the main tool for this is a shift to "adjusted" earnings, which artificially excludes not only employee stock-based compensation, but also the accompanying payroll taxes.
"In reporting fourth-quarter 2024 earnings, Palantir added back a charge of about $282 million for stock awards to GAAP net income (which was $79 million), as well as another $79.7 million of associated payroll taxes. That's how they get the "adjusted" earnings figure that Wall Street presents and that Wall Street accepts. That's not how I do it. My research shows that the value of these compensations to shareholders far exceeds company valuations. In such a situation, I argue that all GAAP earnings simply evaporate."
3. shares as fuel for business
Unlike classic IT companies that scale off-the-shelf code, Palantir has to sell "hours" of its engineers to manually customize systems. Analyzing the 10-K report, Burry points to the critically low ratio of deferred revenue to total revenue - just 32%, which is identical to that of consulting giant Accenture.
To make this labor-intensive business look profitable, the company pays its staff with its own shares rather than money. As a result, high quotations allow Palantir to subsidize the real cost of engineers' work, effectively shifting operating costs to investors through constant dilution of their shares.
"A true software company with a subscription model sells annual subscriptions. Consulting firms don't sell annual subscriptions - they sell project work. Palantir is now clearly in the camp of consultancies like Accenture. And now the "bulls" who value the company at 110 annual revenues as a software business will have to somehow explain why they are ignoring the facts that prove that it really isn't"
4. tax oxymoron: profits in reports, losses in declarations
Burry points out a glaring contradiction: in 2025, Palantir's federal tax losses jump to $9 billion, even though the company has been officially calling itself profitable for three years.
The investor explains this anomaly by the specifics of remuneration: Palantir issues new shares to employees, which is a gigantic expense for the IRS (about $5.1 billion for the year). This "paper" loss completely overwhelms the real profit, allowing the company to avoid paying federal taxes. This scheme creates a tax "shield" at the expense of investors - while the company enjoys benefits, shareholders' shares are melting due to the endless issuance of securities.
"Read that again: federal tax losses grew to $9 billion despite $1.6 billion in profits. You can't make that up on purpose. The government is effectively subsidizing Palantir through giant 'tax shields' while shareholders pay for employee compensation by diluting their shares"
5. Business jet as a marker of ethics
As a final touch to the company's portrait, Burry names CEO Alex Karp's spending on private flights, which more than doubled over the year. The investor compares this amount to the spending of Meta ($1.8 million) or Palo Alto Networks ($2.4 million) executives. Burry sees this level of excessive spending as an indicator of the real quality of management and a sign of hidden disregard for shareholder capital.
"Karp's $17.2 million spending on private aviation is a display of blatant wastefulness. One of the few concrete signals about the ethics and nature of the CEO that we, as readers of the accounts, can find in the documents"
Summary
Burry points out Palantir's main vulnerability: the company is totally dependent on its own stock price. Without their growth, the entire chain - from hiring engineers to maintaining the tax shield - collapses. Burry predicts that once the momentum of "meme stocks" dries up, the business will face the reality of the consulting model, with its high costs and low margins. This will inevitably cause Palantir's stock price to fall to an estimated $46.
"Even if this mad race continues for a few more years, the fall will be no less tremendous, if not worse. And the current market capitalization will turn out to be just an ephemeral illusion"
This article was AI-translated and verified by a human editor
