2 Popular AI Stocks Than Can Drop 37% to 71%, According to Certain Wall Street Analysts

Key Points

• Few prominent analysts opted for a cautious stance for Nvidia and Palantir, even as retail investors chase the AI boom.

• Palantir and Nvidia are undoubtedly delivering stellar numbers, but their sky-high valuations leave little room for error.

• These 10 stocks could mint the next wave of millionaires ›

It has been a turbulent year for the U.S. markets. In early April, many stocks experienced sharp declines due to escalating trade tensions and the introduction of new tariffs by the Trump administration. Investors panicked. Headlines screamed of trade wars.

But fast-forward to July, and it's a completely different picture. The benchmark S&P 500 index is sitting at record highs. Economic metrics are seeming friendlier, and optimism has crept back in.

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But don't let the rally fool you -- there's tension brewing just under the surface, with concerns about inflation, a weak labor market, and potential policy shifts not addressed thoroughly. Share prices of some of the biggest winners, such as Nvidia (NASDAQ: NVDA) and Palantir Technologies (NASDAQ: PLTR), seem to have risen too far, too fast.

Here's what investors should know about these stocks.

Nvidia: Implied downside of 37%

Semiconductor giant Nvidia is the biggest beneficiary of the artificial intelligence (AI) infrastructure boom. With unrelenting dominance in the entire AI tech stack, the company has become a hot favorite of Wall Street.

But, Seaport Research Partners' senior analyst, Jay Goldberg, is not buying the hype. In early April 2025, the analyst made waves by issuing a sell rating on Nvidia with a price target of $100, which is 37% lower than its current level at this writing.

His bearish stance is based on concerns about Nvidia's high valuation amid a slowdown in artificial intelligence (AI) spending as enterprises evaluate real-world use cases. The analyst is also concerned that the company reached its maximum capacity for Blackwell GPU orders for fiscal 2026, is exposed to rising competitive pressures, and faces potential export restrictions to China, all of which pose significant revenue challenges.

To be fair, Nvidia isn't exactly floundering. Quite the opposite. The company's comprehensive AI platform is highly successful, with its integrated computing, storage, and design solutions becoming the backbone of modern data centers and gaming systems. The company is also making rapid inroads in relatively new use cases such as robotics, autonomous self-driving vehicles, industrial design, and edge AI.

The recently launched Blackwell architecture chips, the successor to the highly popular Hopper chips, are also a significant growth catalyst. Blackwell represents a major shift in AI computing design and is already become the fastest product ramp in the company's history. Blackwell is being increasingly deployed by hyperscalers, model builders, enterprises, and sovereign customers for computationally intensive inference (real-time deployment of AI models) workloads.

The success of Nvidia's AI strategy is evident from its financial performance. In its most recent quarter (the first quarter of fiscal 2026, which ended April 27), Nvidia's revenue soared 69% year over year to $44.1 billion, while non-GAAP (adjusted) net income surged 31% year over year to $19.9 billion. With the AI data center market estimated to be worth $100 billion by 2030, the company is likely to continue growing in the coming years.

But here's the uncomfortable truth. The company's valuation seems quite rich, even after considering its stellar growth prospects. With a price-to-earnings (P/E) ratio of 51.4 and a price-to-sales (P/S) multiple of 26.5, growth is not enough. Investors are betting on an overtly optimistic future, in line with the company's past performance, which seems unlikely considering the many headwinds Nvidia faces in the current landscape.

Hence, at these valuation levels, the stock is vulnerable to any disappointments in growth expectations or changes in market sentiment. Although Goldberg's prediction of a $100 share price target may seem extreme, it is not implausible if growth stalls or competition picks up faster than expected.

Palantir: Implied downside of 71%

Then there's Palantir, another AI-powered stock that has become the talk of Wall Street. But Rishi Jaluria of RBC Capital is ringing alarm bells.

In May, Jaluria reiterated his deeply bearish stance on Palantir with an underperform rating and $40 price target, implying a 71% downside from its current share price. The analyst is deeply concerned about the sustainability of Palantir's growth trajectory since government revenue -- historically the company's segment -- is showing signs of deceleration due to rising competition and limited product differentiation. While commercial revenue appeared robust on the surface, RBC claimed that it was slightly weaker than the consensus expectation. Jaluria points out an unfavorable risk-reward balance for Palantir, as he believes the stock is trading at a premium valuation, which appears unjustified given its growth challenges and limited market differentiation.

Still, there's no denying the company's AI momentum. In the first quarter, the company's revenue increased 39% year over year, while U.S. revenue rose even more impressively by 55%.

What differentiates Palantir from other prominent AI players is its focus on leveraging its proprietary ontology capabilities (a mapping of real-world assets of the clients with digital assets) with large language models (LLMs) to resolve real-world business problems. This positioning becomes particularly valuable in a market where AI models are becoming increasingly commoditized. Palantir's Artificial Intelligence Platform (AIP) is now focusing on enterprise autonomy, helping companies build, test, evaluate, and deploy agents that can dramatically improve productivity.

Increasing geopolitical tensions are also a tailwind for Palantir. The company's foundational U.S. government business reported 45% year-over-year growth, while U.S. commercial revenue accelerated 71% year over year in the first quarter. Clients are rapidly transitioning from pilots for AIP to multimillion-dollar deals in weeks rather than years.

It is undeniable that Palantir's valuation paints a disturbing picture. Trading at over 101 times revenue and approximately 584 times earnings, Palantir's valuation far exceeds even the major technology giants. There has also been significant insider selling by high-ranking executives such as CEO Alexander C. Karp, COO Shyam Sankar, and Director Stephen Andrew Cohen, which may suggest that the stock is perceived as overvalued even by the management.

Against this backdrop, short-term investors with an investment horizon of less than a year can consider taking small profits from the stock. Long-term investors with an investment horizon of more than five years and who are highly optimistic about Palantir's growth prospects can consider having a small exposure to this company even at elevated valuation levels.

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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.