According to Fortune, top analyst Tony Yoseloff warned in late October about an impending “AI wobble” and “prisoner’s dilemma” in tech stocks, and his prediction materialized dramatically this week. Yoseloff, speaking on Goldman Sachs’ Exchanges podcast recorded October 20, described how tech giants are trapped in circular financing where they’re forced to invest billions because competitors are doing the same. The warning coincided with Michael Burry revealing a $1.1 billion short against AI leaders Nvidia and Palantir in early November. Palantir then demonstrated the “wobble” perfectly – after reporting record $1.18 billion Q3 revenue and soaring 7% initially, its stock reversed to plunge nearly 8% in a single day. CEO Alex Karp responded angrily on CNBC, calling short sellers “crazy” while his stock continued falling another 2% Wednesday.
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The Prisoner’s Dilemma Is Real
Here’s the thing about Yoseloff’s prisoner’s dilemma analogy – it’s brutally accurate. Tech companies are spending billions on AI infrastructure not because they’re confident in returns, but because they’re terrified of being left behind. It’s like an arms race where everyone knows the weapons might be useless, but nobody can afford to sit out. And when you’ve got 10 stocks representing 40% of the S&P 500’s weight, any crack in confidence becomes systemic. Basically, we’re watching companies make billion-dollar bets because… well, everyone else is doing it. Does that sound like solid investment strategy to you?
History Rhymes Again
Yoseloff compared today’s concentration to the Nifty Fifty of the 1970s and the dot-com bubble – and he’s not wrong. In both those eras, investors waited up to 15 years just to recover losses. The parallels are unsettling: excessive valuation multiples (Palantir trades at over 100x earnings), narrow market leadership, and this collective belief that “this time is different.” But look at what happened when even strong results couldn’t justify Palantir’s valuation – the market essentially said “so what?” to record revenue. That’s classic bubble behavior where good news triggers selling because expectations have become completely unmoored from reality.
Karp’s Anger Misses the Point
Alex Karp’s combative response on CNBC was entertaining but ultimately missed the market’s message. His outrage at short sellers attacking what he calls “the most important software company in America” ignores the fundamental problem: valuation matters. You can have record government contract growth (up 52% year-over-year) and still be wildly overpriced. The market isn’t questioning Palantir’s business – it’s questioning whether any business deserves a 100+ P/E ratio in this environment. Karp’s defiance can’t change the math – when expectations get this disconnected from reality, something has to give.
Where Do We Go From Here?
So what happens next? We’re probably seeing the beginning of the separation between real AI winners and the pretenders. The prisoner’s dilemma can’t continue forever – eventually, someone has to actually generate returns on these massive investments. The scary part is that if this turns into a full-blown correction, we could be looking at years of dead capital haunting tech valuations. But there’s opportunity here too. As Yoseloff noted, absolute return strategies thrive when markets finally distinguish between companies that actually deliver and those that just talk a big game. The AI wobble might be painful, but it’s probably necessary to clear out the hype and find what’s actually valuable.
