2 Popular AI Stocks to Sell Before They Drop 47% and 60%, According to Wall Street Analysts

Palantir Technologies (NASDAQ: PLTR) and Nvidia (NASDAQ: NVDA) have been two of the most popular artificial intelligence stocks since ChatGPT launched in November 2022. During that period, Palantir has returned 1,960% and Nvidia has returned 1,290%. But certain Wall Street analysts think the stock are overvalued.

• Brent Thill at Jefferies recently raised his target price on Palantir to $70 per share. That implies 60% downside from its current share price of $178.
• Jay Goldberg at Seaport Research recently set his target price on Nvidia at $100 per share. That implies 46% downside from its current share price of $188.

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

Image source: Getty Images.

Palantir Technologies: 60% implied downside

Palantir develops data analytics and artificial intelligence (AI) software for commercial and government clients. International Data Corp. (IDC) has ranked the company as a leader in decision-intelligence platforms, and Forrester Research has recognized its leadership in artificial intelligence and machine learning platforms, a market forecast to grow at 40% annually through 2028.

Palantir reported impressive third-quarter financial results that beat estimates on the top and bottom lines. Revenue increased 63% to $1.1 billion, the ninth straight acceleration, and non-GAAP earnings surged more than 100% to $0.21 per diluted share. CFO David Glazer told analysts the strong results were due to accelerating demand for its artificial intelligence platform.

However, while the company is executing on a massive opportunity, the stock trades at an absurd valuation of 108 times sales, the most expensive multiple in the S&P 500 by a wide margin. The next closest contender is AppLovin at 38 times sales. That means Palantir is nearly three times more expensive than the next closest stock in the index.

Brent Thill at Jefferies told CNBC during a recent interview, "The fundamentals are rock solid, but the valuation is unlike anything we have seen." He believes investors hoping to capitalize on the artificial intelligence boom should consider other options. Palantir shares may grind higher in the near term, but history says the present valuation is unsustainable.

Nvidia: 46% implied downside

Nvidia dominates the market for artificial intelligence infrastructure. The company is best known for its graphics processing units (GPUs), chips also called AI accelerators because they speed up training and inference workloads in data centers. Nvidia holds more than 90% market share in data center GPUs, but the company has also secured a leadership position in generative AI networking equipment.

Confidence in Nvidia wavered earlier this year, when Chinese AI lab DeepSeek developed large language models rivaling those from U.S. companies like OpenAI, while reportedly spending a fraction as much. That raised questions about whether U.S. companies were overspending on AI infrastructure, which led to a sharp drawdown in Nvidia stock.

Meanwhile, chip export restrictions imposed by the U.S. government essentially stop Nvidia from doing business in China, the second largest AI market in the world. While the Trump administration changed tack earlier this year, choosing to allow sales of H20 GPUs in China in exchange for 15% of revenue, the Chinese government warned companies not to buy them after the U.S. Commerce Secretary made insulting comments.

Also, the revenue sharing arrangement that allows Nvidia to sell chips based on the Hopper architecture (i.e., H20 GPUs) in China has not been extended to the more powerful Blackwell architecture. CEO Jensen Huang says there are "no active discussions" with the U.S. government that would change the situation. That means Nvidia's market share in the country is headed toward zero, down from 95% pre-export restrictions.

However, while concerns about AI infrastructure spending and export restrictions are valid, I highly doubt the stock will decline 46% as implied by the target set by Jay Goldberg at Seaport. In fact, the stock currently trades at 54 times earnings, which is quite reasonable for a company whose earnings are forecast to grow at 36% annually over the next three years. I think Nvidia is an AI stock worth holding.

Trevor Jennewine has positions in Nvidia and Palantir Technologies. The Motley Fool has positions in and recommends Jefferies Financial Group, Nvidia, and Palantir Technologies. The Motley Fool has a disclosure policy.