2 Popular Artificial Intelligence (AI) Stocks Facing Potential 75% Plunge - Wall Street’s Dire Warning

Wall Street's crystal ball reveals troubling forecasts for AI darlings.

The Analyst Exodus

Multiple firms flash sell signals on once-beloved artificial intelligence plays. Price targets suggest staggering downside potential - we're talking up to seventy-five percent evaporation. These aren't minor corrections; they're potential portfolio wrecking balls.

When Growth Stories Fade

Revenue projections miss. Competitive pressures mount. Valuation metrics stretch beyond reasonable limits. The same narratives that fueled rallies now fuel skepticism. Sometimes the smartest trade is knowing when to exit stage left.

Timing the Tumble

Market sentiment shifts faster than crypto Twitter during a bull run. The same Wall Street cheerleaders who championed these stocks now see fundamental cracks in the foundation. When analysts turn bearish, retail investors often get left holding the bag - because apparently, financial advisors get early evacuation notices.

Remember: In markets, sometimes the best AI is Actual Intelligence about when to take profits.

Image source: Getty Images.

1. CoreWeave

(CRWV -4.96%) specializes in renting GPU servers to artificial intelligence developers and helping larger hyperscale cloud providers meet their customers' demand for compute. One of CoreWeave's biggest investors is(NVDA 0.27%), which owns roughly 7% of the company. That relationship ensures CoreWeave gets priority access to Nvidia's coveted GPU systems, making it a key supplier of compute for the industry.

Nvidia recently built on its relationship with CoreWeave, signing a contract to buy any unused capacity from CoreWeave as part of a $6.3 billion GPU purchase. That essentially gives the cloud computing company carte blanche to build out capacity, ensuring that its virtuous cycle of growth can continue through at least 2032, when the contract ends.

CoreWeave has grown quickly by taking on debt to build new data centers, which it outfits with Nvidia chips and then rents to customers in need of compute. The growing demand for AI compute enabled it to easily rent out its capacity, giving it more revenue, which it can use to raise more debt and build more capacity.

But even with Nvidia acting as a backstop, the stock comes with significant risks. For one, it has a huge customer concentration challenge.represented 71% of its revenue last quarter. Meanwhile, Microsoft is building out its own capacity as fast as possible. And any drop in demand from Microsoft could significantly harm the virtuous cycle powering CoreWeave's growth. Nvidia's backstop will help, but the growth will completely sputter.

CoreWeave's singular focus and its reliance on Microsoft are the biggest reasons HSBC analyst Abhishek Shukla put a $32 price target on the stock earlier this year. That's the lowest on the Street, representing a 75% decline from the stock price as of this writing. While CoreWeave has had some positive developments since that analyst note, the stock still faces significant risks with its extremely high debt load.

2. Palantir Technologies

(PLTR -0.83%) makes software that helps businesses and government agencies draw actionable insights from their massive and disparate data sets. The company's data ontology software received a significant boost from the development of its Artificial Intelligence Platform (AIP). The addition allows enterprises to plug in a large language model and use natural language to interact with its software. That's expanded the use cases for Palantir while making it easier for more users to take advantage of its powerful features.

Palantir has been growing quickly as a result. Last quarter's sales climbed 48% year over year. It's seeing even stronger results among U.S. commercial customers, up 93% year over year. On top of that, it's showing very strong operating leverage, as the company's product-first strategy has kept its marketing and sales expenses relatively low. Adjusted operating margin expanded to 46% last quarter, giving it a Rule of 40 score of 94.

The future looks bright for Palantir as well. Its remaining deal value among U.S. commercial customers sat at $2.79 billion as of the end of last quarter, up 145% year over year. And it signed a $10 billion contract with the U.S. Army in August.

But Wall Street thinks the stock may have gotten ahead of the results. RBC Capital's analysts put a $45 price target on the stock following the news of its U.S. Army contract. That represents a 75% drop from its stock price as of this writing. The big reason for the low price target is Palantir's valuation, providing an "unfavorable risk-reward" profile. Indeed, the stock currently trades for over 100 times forward sales estimates and over 275 times forward earnings estimates. Palantir needs to grow at a breakneck pace for years to come in order to justify those valuations, and any misstep or disappointing earnings report could send shares plummeting.