2 Popular Artificial Intelligence (AI) Stocks to Sell Before They Plunge 64% and 67%, According to Some Wall Street Analysts

Enthusiasm for artificial intelligence (AI) has driven the S&P 500 (SNPINDEX: ^GSPC) towards dozens of records in 2024. Palantir Technologies (NYSE: PLTR) And Fire arms (NASDAQ: ARM) have benefited greatly from this momentum, recording year-to-date gains of 61% and 145%, respectively.

Some Wall Street analysts, however, believe the stock has gotten ahead of itself. Their 12-month price targets imply a substantial downside for shareholders.

• Rishi Jaluria of RBC Capital Markets set a price target of $9 per share for Palantir, implying a 67% downside from the current share price of $27.

• Javier Correonero at The Morning Star set Arm a price target of $66 per share, implying a 64% downside from its current share price of $182.

Should Investors Sell These High-Flying AI Stocks?

Palantir Technologies: 67% implied decline

Palantir offers four core software platforms. Gotham and Foundry enable customers to integrate data, develop artificial intelligence (IA) and machine learning (ML) and design analysis applications to improve decision making. Apollo is a delivery system that updates both platforms, and AIP (Artificial Intelligence Platform) provides support for Generative AI in Gotham and Foundry.

Analysts have mixed views on Palantir. In the bullish camp, Forrester Research The company is ranked as a leader among AI/ML platform providers, and Dresner Advisory Services ranks it as a leader in ModelOps, which deals with the development, deployment, and optimization of AI/ML models. Last year, Dan Ives of Wedbush Securities called Palantir “probably the best pure AI name.”

In the bear camp, Gartner Palantir ranks below most of its peers in data integration tools, and the consultancy didn’t even mention Palantir in a recent report on data science and ML platforms. Last year, RBC Capital’s Rishi Jaluria said that conversations with industry experts and company employees suggest that Palantir “doesn’t seem to be something that’s really differentiated in generative AI.”

Palantir reported strong financial results for the first quarter. Revenue rose 21% to $634 million and non-GAAP earnings rose 60% to $0.08 per diluted share. Management noted “unprecedented demand driven by AIP momentum.” Still, the company is forecasting 20% ​​revenue growth for the full year, implying a slight deceleration in the coming quarters.

Wall Street expects adjusted earnings per share to grow 22% annually through 2026. That estimate makes the current valuation of 99 times adjusted earnings very expensive. I doubt Palantir shares will plunge to $9 as Rishi Jaluria predicts, but investors should consider reducing their position here.

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Arm Holdings: 64% implied decline

Arm designs central processing unit (CPU) architectures that it licenses to customers such as Apple, AmazonAnd NvidiaThese companies use Arm-based products to develop their own chips and systems. They have the option of building chips with custom cores (the processing engines of processors) or…