Not all high-profile AI stocks are suitable purchases following the substantial bull market surge.
In recent years, artificial intelligence (AI) has emerged as a major topic in business discussions. According to FactSet Insight, the number of S&P 500 companies referencing “AI” during their earnings calls increased dramatically from under 75 in 2022 to 241 in the first quarter of this year.
A select group of companies has capitalized on the AI demand, either by establishing substantial businesses around AI or by integrating it to broaden their market reach. Many of these firms have experienced significant increases in their stock prices over the past few years.
However, not every rapidly rising AI stock is advisable to buy after its price surge. Recent reports indicate that Wall Street analysts have grown skeptical about two of the most successful performers, predicting potential declines ahead.
1. Palantir Technologies (74% potential downside)
Palantir Technologies (PLTR 2.59%) has been among the top gaining stocks recently, boasting an extraordinary 2,290% increase since the beginning of 2023, resulting in a market capitalization surpassing $350 billion.
Despite this growth, several analysts believe the stock has appreciated too quickly. Currently, only seven analysts recommend buying the stock, while 17 suggest holding, and four indicate selling. The most pessimistic forecast comes from RBC’s Rishi Jaluria, who sets a $40 price target, implying a 74% decrease from the current level.
This conservative outlook does not stem from Palantir’s financial performance; the company has achieved substantial revenue growth by expanding its market through its Artificial Intelligence Platform (AIP). The platform simplifies user interaction with its big data software, enhancing decision-making capabilities. As a result, Palantir’s U.S. commercial revenue surged, including a 71% uptick in the first quarter.
2. CrowdStrike (26% potential downside)
CrowdStrike (CRWD 1.32%) has witnessed a 352% rise in share price since early 2023, largely attributed to its Falcon security platform. The company rebounded quickly from a significant IT outage last July, with its market cap nearing $120 billion.
Nevertheless, analysts are now scrutinizing CrowdStrike’s stock more closely. Recently, the stock underwent three downgrades from buy to hold, with one analyst initiating coverage as a hold as well. Over the last three months, buy ratings have dropped from 41 to 31. The lowest price target set is $350, indicating a 26% potential decrease from the current price.
The overarching concern for both stocks appears to be valuation. CrowdStrike has seen consistent growth in its customer base as enterprises increasingly consolidate their cybersecurity needs. Currently, 48% of customers utilize at least six of its modules, a rise from 40% two years ago. While the company’s operational growth remains robust, its stock trades at a price-to-sales ratio of 22 times projected revenue for the next year, positioning it as one of the highest-priced stocks in the S&P 500.
Though CrowdStrike and Palantir may continue to rise, it might be wise for investors to consider securing profits now and exploring more favorable opportunities in the market.
