Wall Street analysts sound the alarm! Dump these AI stocks before they crash 62% and 74%

Investors in the AI space may want to double-check their portfolios, particularly if they own shares in two of the most popular stocks: Palantir Technologies and Super Micro Computer. Wall Street experts have sounded the alarm, cautioning that both stocks may experience significant drops in the coming year, reported The Motley Fool.

Palantir Technologies: A 62% plunge ahead?

As per reports, Palantir, which specializes in advanced data analytics software, has had remarkable progress over the past few months. The firm has experienced a jump in customers, with a 43% rise in the number of clients and a 20% increase in average spend per client, resulting in a 36% year-over-year revenue increase. Even with these good results, Wall Street analysts have some serious reservations regarding the stock's high valuation, as per The Motley Fool.

RBC Capital analyst Rishi Jaluria has put a price target of only $40 a share on Palantir, which is a 62% loss from the current $106 price, reported The Motley Fool. While the potential of Palantir to bring AI and machine learning into businesses has been lauded by some analysts, others are not so optimistic. For instance, Forrester Research has highly rated Palantir's AI platform, but another influential research company Gartner, has ranked the company lower than other major players such as Alphabet, Amazon, and Microsoft in the data integration category.


While Palantir's long-term growth estimates are attractive, analysts are forecasting adjusted earnings to increase 31% a year through 2026, as per the report. This makes the current valuation of 255 times adjusted earnings very expensive, reported The Motley Fool. Even with strong growth, such an elevated price could be difficult to sustain.

Super Micro Computer: A 74% drop?

Another AI stock that is receiving warnings is Super Micro Computer, a top server and storage system maker. Super Micro is renowned for its agility in getting products to market, especially AI servers based on chips from firms such as Nvidia, as per reports. But analysts are growing wary of Super Micro's long-term future in the face of intense competition from larger players such as Dell, reported The Motley Fool.

Susquehanna's Mehdi Hosseini has set a price target of only $15 a share for Super Micro, a 74% drop from where it currently sits at $59, according to The Motley Fool. Hosseini claimed that Super Micro's dependence on third-party chipmakers and its absence of proprietary innovation will leave it in the crosshairs as larger players grab market share in the fast-growing AI market, reported The Motley Fool.

According to the report, Super Micro has been in a cloud of suspicion since August, when Hindenburg Research released a report claiming accounting problems and potential sanctions and export-control violations. Although an internal committee did not find any wrongdoing, the company's inability to release its fiscal 2024 10-K and its reduction in revenue guidance for fiscal 2025 are reasons for concern.

Should you sell?

Both Super Micro and Palantir are under severe challenges, even though they are leading in the AI sector. Target prices by analysts indicate that there is significant downside risk ahead, with Palantir losing up to 62% of its value and Super Micro dropping by as much as 74%.

According to The Motley Fool, even though these firms might have great technologies, their stock prices could be overvalued and investors need to think about revisiting their positions, especially if they have invested heavily.

For shareholders of these companies, it is perhaps time to give a second thought before adding to their positions, as per the report. The signal from Wall Street experts is to be cautious.

FAQs

How much could Palantir’s stock drop?
Palantir could see a 62% drop, with analysts setting a target price of $40, down from its current $106.

Should I sell my Palantir or Super Micro stock?
Analysts suggest investors reconsider their positions, especially if they hold large amounts, as both stocks have significant downside risk.