Wall Street analysts say the two popular AI stocks will sell before they reach 46% and 73%

Key Points

• Palantir and Arm Holdings have been great investments in recent years, but certain Wall Street analysts believe stocks are being very overvalued today.

• Palantir reports that it has accelerated revenue growth for the eighth quarter in a row, but it is the most expensive stock on the S&P 500 and a wide margin.

• ARM is rapidly sharing in data centers as companies prioritize power-efficient server CPUs, but it is the third most expensive stock on the NASDAQ-100.

• 10 shares better stocks than Palantir Technologies›

Stocks Palantir Technologies (NASDAQ: PLTR) The artificial intelligence (AI) boom began in earnest in January 2023, so we returned 2,570%. Arm Holdings (NASDAQ:ARM) Although it was not published until September 2023, the stock has moved 195%. These earnings result in both stocks trading at a rich valuation, which means certain Wall Street analysts recommend selling.

• Rishi Jaluria of RBC Capital has set a target price of $45 per share for Palantir. This means a 73% downside from the current stock price of $171.
• With Javier Coronero Morning Star We have set a target price of $80 per share for ARM. This means a 46% downside from the current stock price of $150.

Here's what investors should know about these popular AI stocks:

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Palantir Technologies: 73% suggest an implicit downside

Palantir introduced the Artificial Intelligence Platform (AIP) in April 2023. It acts as a large-scale language model organization tool that complements the core data analytics platform by enabling developers to integrate generated AI into applications and workflows. The product has achieved unauthorized success, as sales growth accelerated over eight consecutive quarters.

The advantage of Palantir lies in its proprietary ontology-based software architecture. In this context, ontology is a framework that integrates organizational data, assets, and actions into a digital twin that supports decision-making. It also captures the results of all decisions, brings the information back to the model, and creates a feedback loop that leads to better insights over time.

International Data Corp. ranked Palantir last year as the market leader in decision intelligence platforms. That's a good for the company. Grand View Research estimates that data analytics software sales will increase by 29% per year through 2030.

However, Palantir is one of the richest software stocks in history. Currently trading at 126x sales, making it the most expensive stock in S&P 500 With a long shot. The second most expensive stock is Texas Pacific Land 29x sales. This means that Palantir is the most expensive stock in the index, even if it loses 75% of its value.

In that context, it is completely plausible that Palantir will suffer a major meltdown at some point in the future. Future investors should avoid stocks or at least keep every position very small. Current shareholders, who have a significant proportion of the portfolio invested in Palantir, should consider trimming their positions.

Arm Holdings: 46% suggests implicit downsides

ARM has long dominated the mobile device processor market because of its power-efficient architecture. Its central processing units (CPUs) are found in 99% of smartphones. However, the quality, coupled with the flexibility of the licensing model, has helped the arms create license blueprints for customers developing custom chips, rather than creating chips, to help them gain market share in the data center.

major technology companies such as alphabet, Amazon, appleand Microsoftdesigned an arm-based server processor. and nvidiaThe Grace Blackwell Super Chip pairs two Blackwell GPUs with an arm-based Grace CPU. In total, ARM has added about 10% points of market share to its data center over the past two years, Intel I lost about 16 points. AMD It also gained a share explaining the difference.

This trend may continue as businesses seek to curb the operating costs associated with AI infrastructure by deploying more power-efficient server processors. CEO Rene Hass recently said that AI is “driven unprecedented demand for not only performance but energy-efficient computing, and is the only computing platform built to deliver.”

However, ARM is currently trading at 94x adjusted revenues. This is particularly expensive for companies that are expected to increase revenues at 23% per year throughout the fiscal year 2027. These numbers give the price/revenue to growth (PEG) ratio (PEG) that is traditionally considered to be overvalued. Additionally, ARM is trading at 39 times the sale, making it the third most expensive stock. NASDAQ-100behind Palantir and strategy.

I don't think ARM stocks will fall 46% unless the broader market drops sharply, but the stocks are very expensive. Investors need to wait for a better entry point before putting money into this semiconductor company. Personally, I feel like I'm more comfortable buying at $120 per share, but the rating continues to grow at that price.

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Trevor Jennewine has positions at Amazon, Nvidia and Palantir Technologies. Motley Fool features Advanced Micro Devices, Alphabet, Amazon, Apple, Intel, Microsoft, Nvidia, and Palantir Technologies and recommends them. Motley Fool recommends the following options: A $395 call with Microsoft for January 2026 length, a $405 call with Microsoft for January 2026 short term, a $405 call with Microsoft for November 2025 short term $21 will launch Intel. Motley Fools have a disclosure policy.