Wall Street analysts say two popular AI stocks will sell before dropping 59% and 61%

Key Points

• Palantir and CoreWeave have more than doubled this year, but certain analysts expect artificial intelligence (AI) stocks to fall sharply in the coming months.

• Palantir says it has the unique ability to provide on-demand for AI for its software architecture, but it is also the most expensive stock on the S&P 500.

• CoreWeave's debt-intensive business model is reduced to profits, but the company operates a major AI cloud and its stocks are traded at a reasonable valuation.

• 10 shares better stocks than Palantir Technologies›

Palantir Technologies (NASDAQ: PLTR) Meanwhile, stocks rose 105% this year. coreweave (NASDAQ: CRWV) Stocks are 115% ahead. However, listed Wall Street analysts have stock selling ratings. Their target price suggests a big loss for shareholders.

• In Brent Till Jeffreys We have set a Palantir with a target price of $60 per share for 12 months. This means a 61% downside from the current stock price of $155.
• Da Davidson's Gil Luria set up CoreWeave with a 12-month target price of $36 per share. This means a 59% downside from the current stock price of $88.

Here's what investors should know about these common artificial intelligence (AI) stocks:

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Palantir Technologies: 61% of the implied downsides

Palantir develops data analysis software. Its core platform allows users to consolidate, organize and visualize complex information to support defense, intelligence, and decision-making across the enterprise. The company is also developing an Artificial Intelligence Platform (AIP) that allows developers to integrate large-scale language models into workflows and applications.

Palantir's unique software architecture – its platform revolves around digital representations of ontology, organizational data, processes and assets. “The fundamental investment in ontology and infrastructure positions its use to provide its own demand for AI,” says CTO Shyam Sankar.

Palantir reported strong financial results for the second quarter. Customers rose from 43% to 849, with average spending per existing customer increasing by 28%. Second, revenues rose 48% to $1 billion, eight straight accelerations, and non-GAAP (generally accepted accounting principles) revenues rose 77% per diluted shares, up $0.16.

Investors have good reason to believe the company can maintain momentum. Grand View Research expects spending on artificial intelligence to increase by 36% per year through 2030, while spending on decision intelligence platforms has increased by 15% per year over the same period. Therefore, Palantir sales could grow more than 20% faster each year until the end of the decade.

However, Palantir has an evaluation issue. Price to sales ratio of 115 will be the most expensive stock at S&P 500 (snpindex: ^gspc) With a long shot. No other companies on the index trade more than 30 times the sales. This means that Palantir will have a 70% decline and still could be the most expensive stock. In that context, it is likely that at some point in the future, Palantir will suffer a full-scale meltdown.

coreweave: 59% implies an implicit downside

CoreWeave offers cloud infrastructure and software services built for artificial intelligence workloads. In traditional data centers, up to 65% of the computing capacity of a graphics processing unit (GPU) is lost to system inefficiency, but CoreWeave GPU clusters offer up to 20% performance than alternative clouds.

The company reported a mix of second quarter financial results. Revenues rose 207% to $1.2 billion, while non-GAAP operating profit rose 135% to $200 million. CoreWeave also said its revenue backlog has increased by 86% due to the expansion of its unnamed hyperscale company's deal with Openai. However, the non-GAAP net loss has expanded to $131 million, a much steeper slope than the $5 million loss reported last year.

Interest payments are the main reason for the inconsistency between non-GAAP operating income and non-GAAP net income. Data centers are expensive to operate, especially when filled with AI systems. CoreWeave is harboring a large amount of debt to build its infrastructure, with interest costs totaling $267 million in the second quarter.

However, the company is responsible for borrowing. CoreWeave only assumes debt if the signed contract creates more infrastructure needs. Still, interest payments are such a huge headwind that the company is unlikely to make a profit until 2027, so the stock could be volatile.

CoreWeave is currently trading at 10 times the sales. This is a very reasonable valuation for companies that are expected to increase revenues by 127% per year through 2026. In that context, it is highly doubtful that a 59% decrease in stocks. In fact, I think investors who are happy with volatility should consider buying some shares.

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Trevor Jennewine has the position of Palantir Technologies. Motley Fool has positions include Jefferies Financial Group and Palantir Technologies. Motley Fools have a disclosure policy.