Buffett's Wisdom Could Spell Trouble for Palantir Shorts

Warren Buffett is attributed with the idiom, “You only find out who is swimming naked when the tide goes out.” The statement basically comes down to managing risk. That may apply to the current sell-off in Palantir Technologies Inc. (NASDAQ: PLTR) stock.

Palantir continues to be one of the most popular and controversial stocks in 2025. Over the last week, PLTR stock has been down approximately 15%, and investors have watched the company’s market capitalization be trimmed by over $73 billion.

However, one group of investors has been doing well. Because of the sell-off, short sellers have netted a profit of $1.6 billion. This had to be welcome news to Palantir skeptics, who continue to focus on the company’s valuation.

But with the stock appearing to stabilize in the past few days, it’s fair to suggest that short sellers may need to exercise caution and manage the risk of being too exposed to a bullish reversal.

That advice was echoed by legendary investor and CNBC host Jim Cramer, who warned short sellers to be careful when it comes to shorting PTLR stock. “Shorts momentarily winning...(but) They best not overplay their hand.”

Palantir Keeps Beating the Bears

The sell-off in Palantir stock isn’t due to any specific information about the company. It’s being driven by concerns about valuation and the company’s future growth. The specific question is how low the stock could fall if Palantir fails to meet growth expectations, which even the bulls have to admit will be nearly impossible.

Over the past few years, skeptics have raised three concerns about Palantir: its dependence on government revenue, its inability to turn a profit, and the risk of losing contracts to competitors. But Palantir has answered each of these challenges.

• What if Palantir were too reliant on government revenue? Palantir saw its commercial business revenue rise 93% year-over-year (YOY) in its August earnings report. That side of the business now constitutes 41% of the company’s total revenue.

• What if Palantir couldn’t turn a profit? The company is now solidly profitable. In fact, the company’s earnings per share (EPS) of 16 cents in the last quarter was a 433% YOY improvement.

• What if competitors take away some of the company’s government business? Instead, Palantir continues to stack up important long-term contracts and looks to be the AI engine for the Pentagon.

Short Sellers Face Rising Risks

The drop in Palantir stock has been part of a broader sell-off in technology stocks. As these things go, when a stock has a valuation like Palantir’s, it’s an easy target for short sellers who look to shake out the weak-handed investors.

That may explain some of the stock’s drop. But the retail investors who were buying PLTR stock when it was in the single digits generally don’t scare easily. In fact, while some analysts say the continued growth in the stock is retail-driven, that’s not likely to be the case.

Since Palantir was added to the S&P 500 and then the Nasdaq-100, many institutional investors have had no choice but to add the stock to their funds. Since the fourth quarter of 2024, when Palantir was added to the S&P 500, institutional buying has outpaced selling by nearly a 2-to-1 margin ($25.33 billion bought to $13.32 billion sold).

Another factor to consider is that the consensus price target for PLTR stock continues to climb. It’s true that at $136.61, the stock could drop 15%. However, 12 months ago, the consensus price was around $80. The floor is rising.

Volatility Cuts Both Ways

Palantir stock could fall further. In fact, that already happened once in 2025. From mid-February 2025 to the beginning of April, PLTR stock dropped about 41%.

However, since that point, the stock is up approximately 115%. Undoubtedly, some of that gain was due to short sellers getting caught on the wrong side of a bullish reversal.

It’s still over two months until Palantir reports earnings, but NVIDIA Corp. (NASDAQ: NVDA) reports on Aug. 27. If the company’s report comes in as expected, the AI trade is likely to gain steam.

Buffett’s point was simple: when conditions change, risk is revealed. If NVIDIA sparks another leg of the AI rally, it won’t be Palantir investors caught swimming naked; it will be the shorts.

Where Should You Invest $1,000 Right Now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here

The article "Buffett’s Wisdom Could Spell Trouble for Palantir Shorts" first appeared on MarketBeat.