Using "beyond imagination" AI demand to smash the shorts! The "AI application myth" Palantir (PLTR.US) saw its stock price soar 30%, triggering an epic short squeeze.

Focusing on the AI application leader in AI + Data Analysis Palantir Technologies (PLTR.US), the stock price surged an astonishing 30% on Tuesday. This epic short squeeze has erased all the paper profits of shorts for the year and led to losses amounting to billions of dollars. A short squeeze refers to a situation where the sellers are forced to continuously buy back shares to cover their losing positions. Short covering will further drive up the stock price, adding more pressure to this short-selling group. According to statistics from S3 Partners LLC, as Palantirs stock closed Tuesday with a remarkable 30% increase, investors betting on a decline in the stock price of this AI application super platform with a defense background have cumulatively faced paper losses of $3 billion. With this stock recording its best single-day performance in two years, the gains enjoyed by this short-selling group have now completely flipped to losses for the year. The underlying reason for Palantir becoming one of the biggest winners in this AI boom is that it doesnt primarily sell large models themselves, but rather controls the "last mile" from models to real business value. Furthermore, Palantirs AI demand has transitioned from concept validation to contracting, cash flow, and large-scale deployment in actual production operations. Palantirs AIP AI application platform is responsible for integrating various large models, constructing intelligent agents, and assessing their production performance, while Foundry connects enterprise data, analyzes it, and integrates business processes. Apollo ensures continuous deployment and upgrades of systems across cloud, on-premises, edge devices, and even battlefield environments. The core Ontology maps a company's data, business logic, executable actions, and security permissions into a dynamic "digital twin of the organization," allowing AI to access inventory, production, supply chains, healthcare, energy, or military systems, and truly execute decisions under strict permission constraints. In other words, while generic large models are responsible for "understanding and reasoning," Palantir enables these models to understand the unique real world of an organization and transforms answers into auditable, executable production actionsthis explains why enhanced model capabilities from companies like Anthropic and OpenAI may not necessarily replace Palantir but could instead expand its market for enterprise AI orchestration, governance, and deployment. The demand for AI is "beyond imagination," and Palantir has shattered the short sellers' defenses overnight! The air force has fallen from paper gains of $2.7 billion into a deep loss. The reversal of fortunes for the shorts was driven by Palantir's upward revision of its full-year revenue and profit forecasts on Monday. A stronger performance outlook propelled the stock price upward, ending the previous profitable trend of the shorts. As of the close on Monday, due to the companys lackluster stock performance, shorts were briefly able to secure about $2.7 billion in paper profits for the year. As shown in the chart above, Palantirs stock achieved its best single-day performance since 2024strong performance fueled a spectacular intraday surge of over 30%. Despite the significant single-day record-level increase, Palantir's stock has still fallen over 8% this year and is on track to record its worst annual performance since 2022. Famed investor Michael Burry, known globally for the Hollywood film The Big Short, disclosed a bearish position against Palantir and NVIDIA Corporation in November last year, prompting a sustained decline in Palantir's stock price. In June, Burry stated in his paid Substack newsletter that he had covered half of his short position in Palantir. The character who inspired The Big Short has recently focused his short-selling activities more explicitly on crowded trades related to AI computing infrastructure and the AI semiconductor capital expenditure cycleBurry has expressed bearish positions on NVIDIA Corporation, Tesla, Inc., Micron, Applied Materials, and the iShares Semiconductor ETF through put options or short positions. At the same time, given the company's extremely high valuation, some Wall Street analysts remain cautious about it. Palantir's current expected price-to-earnings ratio exceeds 83 times, representing a significant premium over the broader US stock market. Brent Thill's team of stock analysts at Jefferies wrote in a report, "We are fundamentally positive on this company, but the difficulty of further upside from current levels is increasing." The team maintains a "Underperform" rating on Palantir and adds that there are better risk-reward ratios to be found among other major winners of the AI investment boom, such as Microsoft Corporation, Amazon.com, Inc., and Snowflake Inc. However, Palantir's CEO Alex Karp stated on Monday that the market's demand for the company's AI data analysis tools is beyond imagination, which eased some investors' concerns about its high valuation. Previously, investors were worried that tools developed by AI developers like Anthropic PBC might impact Palantirs AI application-related software business. After Palantir once again raised its full-year performance expectations, the company even welcomed a new bull on Wall StreetBrad Zelnick, a senior analyst at Deutsche Bank Aktiengesellschaft. Zelnick upgraded Palantir's rating from "Hold" to "Buy" and maintained a $200 price target. He stated that after the company once again exceeded expectations in performance and raised its guidance, Palantir deserves a more expensive valuation premium. According to aggregated data from institutions, nearly 70% of the analysts covering the company give it a "Buy" rating. Some analysts believe that the fundamental driver behind Palantir's stock price experiencing a short squeeze is the overall repricing of earnings forecasts; short covering may just be an amplifier. Palantir raised its 2026 revenue guidance from approximately $7.65 billion to $8.15 billion$8.158 billion, representing an approximate 82% year-over-year growth; US commercial revenue is expected to exceed $3.424 billion, with at least a 134% growth rate, while adjusted operating profit guidance is raised to $4.889 billion$4.897 billion, and free cash flow guidance is elevated to $4.5 billion$4.7 billion. The third-quarter revenue guidance of $2.16 billion$2.164 billion also significantly exceeds market expectations of around $2 billion. Such a substantial earnings surprise + upward full-year guidance has forced investors to quickly elevate their future revenue, margin, and cash flow assumptions; the shorts, which had achieved approximately $2.7 billion in paper profits due to the stock price's weakness earlier in the year, turned into about $3 billion in paper losses after a single-day surge of 29.5%, and stop-loss and covering buying orders further strengthened the upward slopea basic fundamental leap triggered this valuation reset, compounded by mechanical short squeezes due to position structure. The "time traveler" of the AI application layer! What the software industry truly lacks is the connection of models to the real world. Senior analyst Zelnick from Deutsche Bank stated in a report: In translating AI demand into real customer value, Palantir is several steps ahead of other AI application software companies. While most companies in the application software industry are still struggling to prove whether AI can really deliver strong incremental value without being entirely disrupted by AI, Palantir increasingly resembles a time travelerit has already arrived at an AI future that others are still striving to reach. Generic large models are responsible for understanding and reasoning, while Palantir enables these models to comprehend the unique realities of an organization and transforms the answers into auditable, executable production actions. In short, Palantir controls the "last mile" from models to real business value. From the perspective of stock price, Palantir has increased by approximately 167%, 340%, and 135% in 2023, 2024, and 2025, respectively, reflecting the market's ongoing revaluation of it from a government data analysis contractor to the enterprise operating system of the AI era. The significant retracement prior to this earnings report stemmed from high valuations, weak growth in international business, and investor concerns regarding generic AI tools disrupting application software. Palantir's latest performance, featuring a 149% growth in U.S. commercial revenue, a 62% adjusted operating profit margin, and continuous upward guidance revisions, directly rebuts the core short argument that "enterprise AI cannot cross the pilot stage." However, despite the stock price surge, the valuation remains extremely high, and any normalization of growth, changes to government budgets, or execution deviations could trigger fierce volatility; the investment insight is not to ignore valuation, but to recognize that Palantir has demonstrated: The most valuable companies in the AI application software layer do not necessarily have the strongest models but possess control over corporate data context, decision workflows, and production systems. What is truly scarce is the connection of models to the real world. In the second quarter, Palantir almost delivered a growth report that "large software companies should not have": total revenue reached $1.935 billion, a year-over-year increase of 93%; U.S. business revenue grew by 115% to $1.573 billion, with U.S. commercial revenue increasing by 149% to $764 million, and U.S. government revenue rising by 90% to $809 million. More importantly, the high growth was achieved without sacrificing profitabilityGAAP operating profit margin reached 47%, adjusted operating profit was $1.194 billion, with a margin of 62%; operating cash flow was $1.216 billion, adjusted free cash flow was $1.220 billion, with a margin of 63%. During the quarter, 220 contracts worth over a million dollars were signed, with total contract value increasing by 49% to $3.373 billion, and the value of U.S. commercial contracts growing by 153% to $2.132 billion, indicating that AI demand has transitioned from pilot projects and demonstrations to large-scale budgeting, contracting, and production deployments.