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Stock prices for certain tech companies are increasing, largely fueled by investments in AI.
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However, analysts suggest that sales growth for these companies may start to decline, prompting a reevaluation of their stock valuations.
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Some firms are relying heavily on debt for expansion, which raises their level of risk.
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10 stocks we like better than Palantir Technologies
The S&P 500 is set to close 2025 strongly, following an extensive bull market lasting over three years. The index is nearing all-time highs, buoyed by significant investments by major tech firms in new AI data centers and overall investor enthusiasm about AI boosting potential earnings.
That said, some of these tech giants might be getting ahead of themselves. While AI spending is on the rise, there are concerns that investors are assuming unreasonable revenue and profit growth, leading many Wall Street analysts to predict potential setbacks for some of the market’s biggest gainers. Two specific stocks worth noting are:
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Palantir Technologies (NASDAQ:PLTR): Analysts at RBC Capital set a price target of $50, indicating a 74% drop from its current value.
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CoreWeave (NASDAQ:CRWV): DA Davidson has a price target of $36, suggesting a 54% decrease from its current stock price.
So, why do analysts hold such a negative outlook on these prominent stocks? It’s worth considering before making an investment.
Palantir assists businesses in making sense of their data. With the massive growth of data generation, its potential market is vast. The introduction of its Artificial Intelligence Platform (AIP) marks a significant step in tapping into this opportunity in 2023.
AIP offers advanced language model capabilities, allowing users to interact with their data using natural language, thereby lowering the technical skills needed to leverage the software effectively. Management credits AIP with their accelerated sales growth and improved profitability.
Last quarter, Palantir reported impressive revenue growth of 63%, with U.S. commercial revenue up by 121%. As the company expands, its operational efficiency is notable, demonstrated by a 51% adjusted operating margin. This yields a Rule of 40 score of 114, indicating strong investment potential.
While Palantir showcases remarkable growth prospects, investors also seek reasonable pricing. Currently, the forward P/E ratio stands at 268, with a price-to-sales ratio exceeding 100—an unsustainable situation. RBC Capital indicates that long U.S. commercial contracts might be inflating demand, hinting at a slowdown in sales growth shortly.
CoreWeave develops and operates data centers while leasing capacity to major clients like Microsoft, Nvidia, OpenAI, and Meta Platforms. Recently, the company’s revenue surged by 134% in the last quarter.
Yet, CoreWeave is heavily indebted, having secured substantial contracts to finance new facilities, amassing $14 billion in debt—double its total from a year ago.
Although many see the rapid revenue growth and backlog expansion as signs that its debt strategy may be sound, there are caveats. Customers have the power to cancel or reduce contracts, potentially resulting in lost revenue. Following reports of delays affecting one of its data center projects, CoreWeave faced a drop in stock price, underscoring that if they lack capacity, they can’t rent it out.
Additionally, as analyst Gil Luria from DA Davidson highlights, relying on debt presents another challenge. CoreWeave’s financials show that interest payments exceed its operating income, which was adjusted to $217 million last quarter. The operating profit margin dropped by 5 points to 16%. For sustainable growth, the company must improve its operating margins—otherwise, it risks taking on even more debt and further losses.
Investing in CoreWeave carries serious risks, especially after the recent stock trading drop linked to its revised fourth-quarter projections. Further delays in data center operations, shifting spending priorities among major clients, or declining profit margins could exacerbate stock price declines.
Before considering an investment in Palantir Technologies, it’s essential to weigh these factors carefully.
What to consider: Best 10 stocks to invest in right now—Palantir Technologies isn’t among them. These stocks are anticipated to offer great returns in the coming years.
It’s interesting; if you look at long-term recommendations, like Netflix or Nvidia, their returns have been substantial, with significant growth since they were first suggested. Keep in mind that while the average return for stock advisors is impressive, you might want to think critically about where you put your money next. Don’t miss the latest top 10 list.
