The Nasdaq has fallen for two consecutive days, tech stocks are facing "profit-taking," and Palantir has experienced a "six-day decline," becoming a "short interest focus."

The sell-off in tech stocks continued into the second day, as investors began to take profits from the star stocks that had driven the index higher this year.

Overnight, the Dow Jones Industrial Average rose slightly by less than 0.1%, the S&P 500 index fell for the fourth consecutive day, and the weakness in tech stocks dragged the Nasdaq Composite Index down by 0.7%, with a cumulative decline of 2.1% over two days.

Traders indicated that this round of sell-off did not have a single catalyst, but some investors pointed to comments made by OpenAI CEO Sam Altman regarding the "bubble characteristics" of the current AI craze.

Among them, the decline of data analytics software company Palantir was particularly notable, with the company's stock price falling for six consecutive trading days, marking the longest losing streak since April 2024, and a market value evaporation of $73 billion.

This round of decline was triggered by a report from the well-known short-selling firm Citron Research, which pointed out that its stock price was "disconnected from fundamentals" and believed that its fair valuation should be much lower than the current level.

Analysts believe that Palantir's decline is a reflection of the market's repricing of overvalued stocks. Vikram Rai, portfolio manager at Fny Capital Management LP, stated that this sell-off "should have happened earlier":

"When companies like Google, Meta, and Microsoft are all seeing their stock prices fall, those high-beta stocks with absurd valuations are obviously going to fall even more."

Tech Sector Broadly Adjusts, Profit-Taking Sentiment Spreads

The sell-off in tech stocks affected the entire sector. Chipmaker Micron Technology fell by 4%, and Apple dropped by 2%.

Brian Jacobsen, chief economist at Annex Wealth Management, stated:

"We have been concerned about the prices of tech stocks. The market prices reflect very aggressive growth expectations, and when prices rely on growth expectations, vulnerabilities arise."

Nevertheless, many investors remain optimistic about the long-term prospects of tech stocks, pointing out that the strong earnings growth in the industry is its core support.

Among the 11 sectors of the S&P 500 index, 7 rose, indicating that some investors were merely locking in profits and reallocating funds to areas of the market with cheaper prices. The market outside of tech stocks remained relatively calm, with the Dow's volatility remaining below 0.1% for five consecutive trading days, marking the longest stretch since 1994.

Palantir Becomes a Short-Selling Focus, High Valuation Raises Questions

As the best-performing stock in the S&P 500 index this year, Palantir's rapid decline has made it a focal point of market attention Market data shows that after six consecutive days of decline, Palantir's stock price has fallen more than 18% from its recent high, not only entering a technical correction zone but also dropping out of the list of the 20 companies with the highest market capitalization in the United States.

Last week, Citron founder Andrew Left described Palantir as "far beyond the realm of overvaluation" and pointed out that if measured by the price-to-sales ratio corresponding to OpenAI's recent $500 billion valuation, Palantir's stock price should be at $40.

In the short-selling report, Left stated:

"Compared to true leaders in artificial intelligence, Palantir's current price reflects success that exceeds its fundamentals."

Previously, Palantir's stock price soared due to its first quarter with $1 billion in revenue and the AI boom. Even with the recent decline, its expected price-to-earnings ratio of 193 times still makes its valuation appear particularly "expensive" among peers.

Short Sellers Rarely Profit but Still at a Loss

According to S3 Partners data, Palantir's recent stock price correction has brought short sellers over $1.6 billion in paper profits, but this only partially offsets their cumulative paper losses of $4.5 billion this year.

Despite the recent significant correction, Palantir's year-to-date increase remains as high as 106%, still making it the largest gainer in the S&P 500 index.

Steve Sosnick, chief strategist at Interactive Brokers LLC, stated that due to the stock's previous momentum, many short sellers have abandoned their bets on the stock over the past year. S3 Partners data also confirms that the short interest in Palantir has decreased from nearly 5% of its float a year ago to about 2.5%.

There are signs that as Palantir's stock price shows signs of fatigue, short sellers may be regrouping.

S3 Partners data shows that since early June, Palantir's short positions have increased by about 10 million shares. The market generally believes that if Palantir's stock price rebounds, it may attract more short sellers to enter