Three AI Stocks Expected to Plummet by 71% to 80%

The evolution of artificial intelligence (AI) has been a major trend on Wall Street for over two years. However, not all AI stocks are equally promising, according to some Wall Street analysts. Three widely-held and closely-followed AI stocks are on shakier ground than investors might realize, with price targets suggesting potential declines of 71% to 80% over the next year.

Artificial intelligence has garnered significant attention since late 2022. Empowering software and systems to make split-second decisions without human oversight is a game-changer that can benefit multiple industries globally. While most Wall Street analysts believe AI can positively transform corporate America, there are differing views on which AI stocks are poised for success.

Based on the price targets of select Wall Street analysts, three skyrocketing artificial intelligence stocks are expected to plummet significantly over the next year. Palantir Technologies, a data-mining specialist, has seen its shares rise by more than 2,000% since the beginning of 2023. This surge is attributed to the irreplaceability of its Gotham and Foundry platforms, which offer robust software-as-a-service solutions.

Despite this strong performance, Rishi Jaluria of RBC Capital Markets predicts that Palantir's shares could fall to $40. Given the current share price of $137.30 as of June 20, this implies a 71% decline over the next year. The primary issue with Palantir is its valuation. The company's trailing-12-month price-to-sales (P/S) ratio stands at 110, which is significantly higher than the historical range where tech bubbles tend to burst, typically between 30 and 40.

Palantir is also at risk if an AI bubble were to form and burst. Every game-changing technology since the advent of the internet has experienced a bubble-bursting event. While multiyear contracts with the U.S. government and subscription-driven platforms can help Palantir avoid immediate sales drop-offs, investor sentiment would likely weigh heavily on AI leaders like Palantir in such a scenario.

Another AI stock at risk is Nvidia, a leader in graphics processing units (GPUs) and AI computing. Despite its strong performance, analysts predict a significant decline due to valuation concerns and potential market saturation. The company's P/S ratio is also high, making it vulnerable to market corrections.

The third stock under scrutiny is Tesla, known for its advancements in autonomous driving and AI. While Tesla has made significant strides in AI, analysts are concerned about the company's valuation and the potential for overhyped expectations to lead to a market correction.

Investors should carefully consider these risks and not assume that all AI stocks will continue to rise. While the long-term potential of AI is undeniable, the short-term volatility and valuation concerns could lead to significant losses for those who are not cautious.