Targeting Palantir and Nvidia

Profits, Prophets and Overvalued AI Stocks

Palantir CEO Alex Karp arrives for the Tech for Good summit in Paris on May 15, 2019. Photo credit: Thibault Camus

In an industry of seedy soothsayers, cocksure charlatans and resourceful rogues, honest and accurate appraisals are exquisitely rare. When it comes to economics, investments and finance, this is particularly so. Certitude, however, tends to be in abundance for those predicting the next financial crash, the sort that will singe earnings and strafe savings. Take, for instance, hedge fund investor Michael Burry, a man of sufficient notoriety to warrant a celluloid depiction of himself by Christian Bale in the 2015 film The Big Short.

On that occasion, Burry’s hunch, albeit an educated one, was that the US housing bubble would implode in what became the d. The buccaneering investor shorted mortgage-backed securities ahead of the collapse, raking in profits as the subprime mortgage sundered. But his record is by no means immaculate, seeing falls when they have not eventuated, especially on tech stocks. For him, the language of catastrophe is never far away. A 7 April post on X this year is fabulously bleak: “Millennials going through 9/11, two economic recessions, a pandemic, the looming threat of WW3, AI job automation, and now facing the ‘biggest crash in history’.”

Towards the end of October, he felt in an oracular mood: “Sometimes we see bubbles,” he wrote in another post. “Sometimes, there is something to do about it. Sometimes, the only winning move is not to play.” His Scion Asset Management hedge fund subsequently moved 80% of its US$1.1 billion portfolio to place options against Palantir (PTLR) and Nvidia (NVDA). These will pay handsomely should shares in these AI-linked companies fall. Burry remains convinced that technology stocks, certainly when it comes to artificial intelligence, are overvalued and set for the precipitous plummet. Whether this is due to growing scepticism about the herd-like rush to adopt AI, the debate about necessary regulation, or that broader sensibility that what rises or swells so rapidly must fall or puncture, is impossible to know. Certainly, the incestuous circular financing tech companies have been engaging in is crying out for a stinging correction. But it is precisely moves of this nature by Scion Asset Management that send jitters through the market, turning preaching prophets into market saboteurs.

Surely enough, Palantir’s shares fell by 8% on 4 November despite exceeding Wall Street estimates of returns for the third quarter. The stocks had risen to skyscraper levels—73% for the year heading into trading that day. Nvidia’s fell by 4% after having improved by 50% this year. “It seems fatigue over AI and the current earnings run has investors questioning the sustainability of the AI hype,” reasoned financial analyst Farhan Badami. “That’s dragged down AI companies overnight in markets.”

Sympathy for such companies is bound to be in short supply. Palantir is the sort of data analytics company any half-decent minded individual would wish to fail. In April this year, 404 Media revealed that US Immigration and Customs Enforcement (ICE) had paid the company millions of dollars to modify the ICE database to enable it to “complete target analysis of known populations” and spruce up the targeting of that tool and enforcement priorities. The database gives ICM agents the means to sort individuals using hundreds of specific categories covering physical attributes, administrative background and mobility. ICE Director Todd Lyons has fantasies of running the agency’s crude, clumsy deportation policy “like [Amazon] Prime, but with human beings” in an effort to treat the matter “like a business”.

This charming dystopian thought is a good pairing with the sinister propaganda Palantir enjoys promoting, including a campaign on college campuses that echoes the stirrings of a Nuremberg rally cry: “Our culture has fallen into shallow consumerism while abandoning national purpose. Too few in Silicon Valley have asked what ought to be built—and why.” Palantir, to that end, was built to conquer such flabby complacency. “On the factory floor, in the operating room, across the battlefield—we build to dominate.”

The company CEO, Alex Karp, has been less than impressed by Burry’s short selling efforts. “The two companies he’s shorting are the ones making all the money, which is super weird,” he told CNBC’s Squawk Box in sheer bafflement. “The idea that chips and ontology is what you want to short is batshit crazy.” He is confident that any damage will be minimal. “I do think this behaviour is egregious and I’m going to be dancing around when it’s proven wrong.”

The latest fall is being taken with a grain of salt among some investors, though you can hardly trust them. Take the tepid assessment from equity trading strategist at Citi, Vishal Vivek. “A little bit of risk is not going to take the sheen off what’s been a pretty remarkable year, in fact, a pretty remarkable three-year stretch,” he tells Reuters on whether AI stocks were proving less attractive. “If anything, there’s a reasonable chance that you’re going to pause your buying maybe, but you’re not going to necessarily sell your big positions into year-end because you’re worried about one or two companies that have underperformed.”

Leaving aside such babble and bloviation, if there is a crash in overvalued AI stocks likely to rival the market falls that took place in the Great Recession, a similar government program used for the banks and banksters will be sought by Karp and company. In the private sector, foolish losses and unscrupulous conduct regarding investments often turns its members into temporary socialists. Profit, on the hand, is the sort of thing that rests firmly and assuredly in the clasping hands of the corporate sector, the result of purported intelligence and industry. That’s private enterprise for you.

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