High-Risk AI Stocks: A Warning Signal for Investors

S&P 500 is continuing its surge, riding the wave of the AI boom. However, not all AI stocks are good buy at this moment. Here are two of them, which you should potentially reconsider.

Palantir Technologies and Arm Holdings have surged in 2024 due to growing enthusiasm for AI, with year-to-date gains of 61% and 145% respectively. However, some analysts warn these stocks may be overvalued, projecting significant downside.

RBC Capital Markets’ Rishi Jaluria targets Palantir at $9 per share, implying a 67% decline from its current $27. Morningstar’s Javier Correonero sets Arm’s price target at $66, predicting a 64% drop from its current $182.

Should Investors Reconsider Positions in These AI Leaders?

Palantir, known for its AI and machine learning platforms, has received mixed reviews. Despite strong financials in Q1 2024, including a 21% revenue increase to $634 million, concerns persist over its high valuation of 99 times adjusted earnings. Analysts differ on its competitive edge in AI technology.

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Arm, which designs CPU architectures for tech giants like Apple and Nvidia, reported robust earnings growth in Q4 fiscal 2024. Yet, with a steep valuation of 144 times adjusted earnings and cautious fiscal 2025 guidance, investors face uncertainties despite Arm’s market dominance in mobile devices and growth in data centers.

Investors navigating these stocks must weigh strong market momentum against analysts’ caution, evaluating whether current valuations justify potential long-term risks.

Alexander Stefanov