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2 AI Stocks Analysts Warn Could Drop Up to 75% – Should Investors Sell?
Artificial intelligence (AI) has been a hot topic in the stock market, with investors rushing to buy companies tied to the AI boom. Many businesses, from tech startups to giants, are integrating AI into their operations to boost efficiency and profits. However, some AI stocks may have surged far beyond their fundamentals. Certain Wall Street analysts now predict that two key AI winners could see their share prices fall by as much as 75% over the next year.
CoreWeave specializes in renting GPU servers to AI developers and supporting large cloud providers with their compute demands. Nvidia, which owns around 7% of CoreWeave, ensures the company has priority access to high-demand GPU systems, making it a critical supplier for the industry.
Recently, Nvidia signed a $6.3 billion contract with CoreWeave to purchase any unused capacity, securing growth potential through 2032. This arrangement has allowed CoreWeave to expand rapidly by building new data centers and renting them out to AI clients.
Risks for CoreWeave Investors:
Heavy reliance on Microsoft: 71% of revenue comes from a single client.
High debt load: Rapid expansion through borrowing increases financial risk.
Potential slowdown: Microsoft building its own capacity could reduce demand.
HSBC analyst Abhishek Shukla set a price target of $32, representing a 75% drop from current levels, citing customer concentration and debt as key risks.
Palantir provides software that helps organizations extract actionable insights from large datasets. Its Artificial Intelligence Platform (AIP) allows businesses to integrate large language models and use natural language to interact with data, expanding enterprise use cases.
Palantir has seen strong growth, with U.S. commercial sales up 93% year over year and overall sales up 48%. It also secured a $10 billion contract with the U.S. Army, reinforcing its market position.
Risks for Palantir Investors:
Extremely high valuation: Trading over 100x forward sales and 275x forward earnings, leaving little margin for error.
Overpriced growth expectations: Any slowdown could trigger sharp share price declines.
RBC Capital analysts set a $45 price target, suggesting a potential 75% drop, warning of an “unfavorable risk-reward” profile despite strong contract wins.
Investor Takeaway
While AI stocks like CoreWeave and Palantir have promising growth prospects, their current valuations carry substantial risk. Analysts caution investors that these stocks could drop significantly if the companies fail to meet high expectations.
For risk-averse investors, it may be worth monitoring these stocks closely or considering taking profits before potential declines. Conversely, high-risk investors who believe in the long-term AI boom might choose to stay invested, but with a clear understanding of the risks.
⚠️ Disclaimer
This article is for informational purposes only and does not constitute financial advice. Always conduct your own research or consult with a professional financial advisor before making investment decisions.