Palantir and Tesla Hit Wall Street With a $13 Billion Warning. Here's What Investors Need to Know.

Key Points

• Palantir and Tesla are popular with investors due to their capacity to profit from artificial intelligence (AI), but insiders have sold nearly $13 billion in stock in the last three years.

• Palantir's sales growth has accelerated in eight straight quarters due to the popularity of its AI platform, but it is the second-most expensive stock in the S&P 500.

• Tesla has launched an autonomous ride-sharing service and plans to scale production of humanoid robots next year, but it is the third-most expensive stock in the S&P 500.

• 10 stocks we like better than Palantir Technologies ›

Palantir Technologies (NASDAQ: PLTR) and Tesla (NASDAQ: TSLA) rank among the 10 most widely held stocks on Robinhood, a brokerage platform built for young investors. The companies both have opinionated and somewhat cavalier CEOs, qualities some retail traders find refreshing. But it is their capacity to profit from artificial intelligence (AI) that makes them truly popular.

However, Palantir and Tesla are two of the three most expensive stocks in the S&P 500 (SNPINDEX: ^GSPC), and a preponderance of insider selling may be a warning sign. Form 4 filings show board members and executives at Palantir and Tesla sold a net total of $12.7 billion in stock in the last three years.

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• Palantir insiders sold a net total of $5.4 billion in stock since Sept. 15, 2022.
• Tesla insiders sold a net total of $7.3 billion in stock since Sept. 15, 2022.

Of course, insider selling is not necessarily bad. After all, insiders could sell for any number of reasons, many of which have nothing to do with their conviction in the company.

But the lack of buying activity makes the signal more ominous. In the last three years, one Palantir executive and two Tesla insiders bought stock on the open market, including the $1 billion investment Tesla CEO Elon Musk made earlier this week.

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

Image source: Getty Images.

Palantir Technologies

In April 2023, Palantir introduced an AI platform called AIP. The product, which complements its core data analytics platforms, helps customers build generative AI into application and workflows. Forrester Research has recognized Palantir as a leader in artificial intelligence and machine learning platforms, and demand for AI has been off the charts.

Indeed, since AIP launched in 2023, Palantir's customer count has more than doubled, and revenue growth has accelerated in eight consecutive quarters. The company is well positioned to maintain that momentum as the AI boom unfolds. Management says Palantir is ideally positioned to deliver on demand for AI due to its unique software architecture. CTO Shyam Sankar told analysts, "Twenty years of grinding has built a unique moat and a massive lead."

Here's the problem: Palantir has a strong presence in a large market that is growing quickly -- AI platform sales are projected to increase at 38% annually through 2033 -- but not even the best company is a good investment at any price. Palantir shares currently trade at 204 times 2026 earnings, the second-most expensive valuation in the S&P 500, which in my opinion means the stock is primed to crash at some point in the future.

The market can behave irrationally for long periods, so it is quite plausible that Palantir stock continues to grind higher for another year or two. But it is also possible for the stock to decline sharply next month. My point is the risk-reward profile undoubtedly skewed to the downside, so investors should avoid the stock, or at least keep any positions very small.

Tesla

Tesla has ceded its position as the global leader in electric car sales to Chinese automaker BYD. Demand has deteriorated due to brand damage caused by CEO Elon Musk, who has managed to irritate members of both political parties, as well as an aging lineup of vehicles that looks less appealing as competitors bring new models to market. Tesla's automotive sales have declined in three straight quarters.

However, the investment thesis depends less on electric cars and more on autonomous driving and robotics. Tesla is currently testing its robotaxis in Texas and California, and it recently received approval to start testing in Nevada. Production of the humanoid robot Optimus will scale next year and hit 1 million units annually within five years. Musk says Tesla will be the most valuable company in the world if it executes on those opportunities.

Tesla robotaxis are powered solely by computer vision, which is far less expensive than the sensor array (i.e., cameras, radar, lidar) used by Alphabet's Waymo and other autonomous driving companies. Musk argues that humans rely only on eyesight to operate cars, so sufficiently advanced autonomous driving systems should be able to navigate with nothing but visual inputs. The upshot is Tesla can build robotaxis at a fraction of what it costs Waymo.

Also, Waymo creates meticulous maps that help its robotaxis localize and navigate their environments, which makes expanding a slow process. Company executives say that approach is critical to safety, but Tesla's vision-only approach is more scalable because it bypasses mapping. Musk recently said, "Once we can make it basically work in a few cities in America, we can make it work anywhere in America."

Here's the problem: While Tesla has multitrillion-dollar opportunities in autonomous driving and robotics, those products currently represent a negligible source of revenue. And with the stock currently trading at 160 times 2026 earnings -- the third-most expensive valuation multiple in the S&P 500 -- only investors who believe Tesla is destined to be a leader in autonomous driving and robotics should own this stock.

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Trevor Jennewine has positions in Palantir Technologies and Tesla. The Motley Fool has positions in and recommends Alphabet, Palantir Technologies, and Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.