Microsoft CEO adds fuel to Palantir CEO’s AI warning

Nadella’s version feels a lot less confrontational, but far more coherent, than Karp’s. Still, the underlying warning remains the same. 

Businesses are effectively renting models while donating the knowledge that makes them much more capable.

“In consuming intelligence, you are creating intelligence, and what you create should belong to you,” as Nadella puts it.

Nadella’s warning strengthens Palantir’s core AI pitch 

For Palantir (PLTR) stock investors, Nadella’s warning is important and may have indirectly validated the problem Karp says Palantir was built to solve.

The CEO of the controversial tech firm Karp argued that enterprises should not expose their proprietary data, workflows, and operational knowledge directly to large language models outside their organizations.

Palantir’s answer is Ontology, an application layer that connects models to company operations while controlling what models can access and retain.

Karp said Ontology makes AI “safe and useful and precise,” preventing models from caching customer data, replicating the business, or transferring sensitive intellectual property.

He went a step further in his interview with podcaster Mathias Döpfner, saying businesses need an application layer that “protects your data from being essentially abused by large language model providers.”

If customers become more wary of the data they give up, Palantir could be in line for a massive long-term windfall, but it could also create valuation risks elsewhere in the AI sector.

Palantir needs to prove Ontology can turn that strategic concern into durable contracts, expanding margins, and measurable customer returns.

It’s worth mentioning that the stock is down 27% in the past six months and more than 26% year-to-date, according to Seeking Alpha data. Still, Palantir stock is changing hands at 88 times non-GAAP forward earnings, a steep premium, to say the least, compared to the sector median of around 25 times.

Nadella’s warning raises the stakes for the AI trade 

The interesting part is that the broader AI trade is already up against the uncomfortable question that Wall Street hasn’t answered: Who will earn enough money to justify the extraordinary spending? 

For perspective, Amazon, Microsoft, Alphabet, and Meta are projected to spend about $630 billion on data centers and AI chips in 2026 alone, according to Reuters, more than 4 times their 2023 guidance. 

However, with recent developments, it seems the chickens are finally coming home to roost as the AI trade undergoes a shakeout.

Bank of America’s latest survey found that 45% of fund managers view an AI bubble as the market’s biggest tail risk, Reuters also reported. Yet investors remain heavily committed to the chip stock trade.

Moreover, several of Wall Street’s most popular personalities have sounded alarms.

Ray Dalio says AI is “now in the early stages of a bubble,” while Jeremy Grantham warns that “sooner or later, the bubble will burst.” 

“Big Short” investor Michael Burry has long been skeptical of the AI boom, calling semiconductor valuations “a pure form of overvaluation” and warning that the end may be near.

Nadella’s argument adds to those vulnerabilities.

The reverse information paradox may lead customers to redirect spending toward private, model-agnostic systems, weighing on the biggest names in AI and calling their nosebleed valuations into question.

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This story was originally published by TheStreet on Jul 15, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.