2 Popular AI Stocks to Sell Before They Drop 62% and 74%, According to Certain Wall Street Analysts

Palantir Technologies (NASDAQ: PLTR) and Super Micro Computer (NASDAQ: SMCI) are two of the most popular artificial intelligence (AI) stocks on the market. But certain Wall Street analysts have set the companies with target prices that imply substantial downside in the next year.

• Rishi Jaluria at RBC Capital and Brent Thill at Jefferies recommend selling Palantir. Between the two analysts, Jaluria has the lower target price of $40 per share. That implies 62% downside from the current share price of $106.

• Mehdi Hosseini at Susquehanna and Samik Chatterjee at JPMorgan Chase recommend selling Super Micro. Between the two analysts, Hosseini has the lower target price of $15 per share. That implies 74% downside from the current share price of $59.

Here's what investors should know about Palantir and Super Micro.

Palantir develops data analytics software. Its platforms let customers integrate information, train machine learning (ML) models, and apply artificial intelligence (AI) to complex data to surface insights and improve decision-making. Palantir says its software is unique in its ability to operationalize AI, meaning it can move clients from prototype to product more quickly than alternative solutions.

Analysts have mixed opinions. Forrester Research has ranked Palantir as leader in artificial intelligence and machine learnings platforms, awarding its AIP product higher scores than similar platforms from Alphabet, Amazon, and Microsoft. But consultancy Gartner has scored Palantir below a dozen other vendors for its data integration tools, and did not even mention the company in its latest report on data analytics.

Palantir over the past year reported a series of increasingly impressive financial results. In the fourth quarter, customers increased 43% and the average existing customer spent 20% more. Both metrics accelerated from the prior quarter. In turn, revenue increased 36% to $828 million, the sixth straight acceleration, and non-GAAP net income soared 75% to $0.14 per diluted share

Wall Street expects Palantir's adjusted earnings to increase at 31% annually through 2026. That makes the current valuation of 255 times adjusted earnings look absurdly expensive. Admittedly, Palantir topped the consensus estimate in the last six quarters, but the current valuation would be difficult to rationalize even if earnings grow twice as fast as analysts anticipate.

Personally, I doubt Palantir shares will plunge 62% over the next year. But investors should be cautious about chasing the stock right now, and current shareholders should consider trimming their positions, especially if those positions represent a large percentage of their portfolios.