Good morning, investors. Most days we discuss markets from a macro, big picture view — whether that’s tying them to the Fed, the White House, or broader investing ideas. But today we’re zooming in on the year’s hottest AI trade, because it’s sudden reversal might say more about the rest of the market than the stock itself.

Taking Stock: I discussed Jerome Powell and the Fed outlook at the New York Stock Exchange — I’ll be going every week to talk markets on the new show, “Taking Stock.” Here is Tuesday’s episode.

Testing the limits of AI narrative

No stock has kept up with Palantir in 2025.

Not even Nvidia. 

Yet shares of Palantir have fallen for five trading days in a row, dropping more than 9% Tuesday to erase $75 billion in total over the last week. 

The sudden reversal shows how the hottest AI trade and top-performing stock of the year is colliding with a broader market rotation out of Big Tech and a short seller’s critique. 

On Monday, Citron Research published a scathing report on Palantir, saying that even if the defense name traded at $40 — 75% below current levels — it would still be “expensive” relative to history.

Citron’s case hinges on OpenAI’s recent $500 billion valuation and projected revenue of $29.6 billion for 2026.

Applying that lofty price-to-sales multiple of about 17x to Palantir’s projected 2026 revenue of $5.6 billion would yield a stock worth about $40, according to the report.

OpenAI offers a “true subscription model that Wall Street loves,” Citron wrote.

“In contrast, Palantir relies on large, long-term government contracts and competes in the enterprise space with lumpy, less scalable revenue.”

That divergence underscores why Palantir has become ground zero for the pullback in tech stocks.

It’s up 385% over the last year — far beyond the returns of the Magnificent 7 — and that outperformance has left little margin for softening sentiment.

And while leadership in the S&P 500 remains narrow, the last week has ushered in more signs of broadening.

Healthcare, homebuilders, and defensive sectors have rallied over the last week, while the Nasdaq and chip names like Nvidia, AMD, and Meta have declined. 

That rotation is unfolding while Palantir’s valuation appears out of touch with its fundamentals, in Citron’s view. 

Meanwhile, the firm pointed to CEO Alex Karp selling nearly $2 billion in stock over the last two years.

That, Citron said, runs counter to what Elon Musk did from 2012 to 2020 during Tesla’s meteoric rise. Not only did he buy additional stock, he poured billions of his personal fortune into the EV maker.

Now, it’s still possible Palantir is simply taking a hit from a maturing AI trade.

After all, other stocks within this theme have pulled back in recent days, too. 

Plus, the macro backdrop is a mixed bag — imminent Fed rate cuts, historic US debt, outperformance by non-US equities, geopolitical and trade uncertainty — and investors in search of diversification are fueling broader market breadth. 

To be clear, AI remains the defining theme of this market.

But Palantir’s slide serves as a reminder that even the trade’s biggest winners must convince investors its fundamentals match the narrative.  

Market snapshot

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Elsewhere

📈 President Trump expanded tariffs on key metals. The White House announced that 50% duties are now in effect across more than 400 additional types of products that contain aluminum or steel. These include everyday items like car parts and plastics. (CNBC)

🏦 Scott Bessent is focused on trimming US debt. The Treasury Secretary said he expects a sizable jump in government revenues from tariffs, and that money will be used to start paying down federal debt — not to give rebate checks to Americans. (Reuters)

📊 S&P Global expects “meaningful” tariff revenue, and that will help offset the impact of President Trump’s tax-and-spending bill. The ratings agency maintained its AA+ rating on long-term US sovereign debt. (CNBC)

📉 Private equity firms’ stocks are struggling. That’s despite the recent White House order to allow private credit into 401(k) accounts. The industry faces concerns of slow sales and tight pricing that may not alleviate soon. (WSJ)

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Rapid-fire

• Shares of Home Depot climbed 3.1% despite missing on earnings (Yahoo Finance)

• Crypto-linked stocks Coinbase, eToro, Robinhood and Bullish fell Tuesday (CNBC)

• Trump says Jerome Powell is “hurting” the housing industry with high rates (Reuters)

• Housing starts rose at the fastest pace since the end of 2023 (WSJ)

• The White House is weighing taking stakes in other chipmakers (Reuters)

• Every stock is a meme stock and every investment involves speculation (Pomp Letter)

• Jerome Powell’s successor may not accelerate rate cuts as much as anticipated (Opening Bell Daily)

• Meta is restructuring its newly formed AI group to ramp up its pursuit of superintelligence (Bloomberg)

Last thing

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About me

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day — unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else.

Feedback? Reply to this email, ping me on X @philrosenn, or write me directly at [email protected].