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.

Software stocks have been under pressure—and there may be more selling to come as highflying shares of Palantir finally succumb to gravity.

Palantir (PLTR) shares tumbled Tuesday afternoon, extending recent losses as a high-profile short seller fueled worries the stock could be overvalued after a strong run earlier this year. The shares were down 9% around $158 in recent trading.