Are you thinking about jumping on the bandwagon in artificial intelligence (AI) stocks? You may want to take a closer look at valuations before doing so, as some stocks are trading at significantly high premiums right now. Two stocks that Wall Street analysts think are due for steep declines are C3.ai (AI 3.02%) and Upstart Holdings (UPST 2.76%).

1. C3.ai

AI stock C3.ai has skyrocketed 250% this year, even though its results haven't been groundbreaking or its guidance all that impressive. The company's operations remain unprofitable and revenue last quarter was flat, showing minimal growth from the previous year. 

Even though analysts have been raising their price targets for the tech stock, the consensus analyst price target is just $24.36, which implies a downside risk of nearly 40% from where C3.ai's stock trades right now. The stock is trading at a multiple of 15x revenue and over 4x its book value.

Based on where the business is right now, I would tend to agree that the stock is past its peak. But that can change if the company delivers and performs well this year.

Its guidance calls for revenue of up to $320 million for fiscal 2024 (which ends in April). That would be a 20% increase from the previous fiscal year. While that's an improvement from the less-than-6% growth the company achieved this past year, investors may have been expecting more, given the rising popularity of AI this year. 

The risk with the stock is that it has a beta value of around 1.4, which tells investors that it's highly volatile. That means an earnings miss or an earnings beat could have a significant impact on where the stock goes. Unless you're willing to go on a roller-coaster ride with this stock, you may be better off taking a wait-and-see approach with C3.ai to see if it can turn into a high-growth stock.

While the ride has been prosperous for investors so far this year, C3.ai will face some big tests in 2023 now that AI is on the minds of many businesses. If it's the real deal, the business should soar and either beat its guidance or, at the very least, come in at the high end of it. Anything less than that could prove to be a disappointment and send the stock into a tailspin.

2. Upstart Holdings

Upstart Holdings uses AI to help lenders make better decisions about who to lend money to. With the help of thousands of data points, it promises to make the process more efficient.

The problem is that with interest rates rising, its lending partners haven't been all that eager to issue loans, given the economic uncertainty ahead, and demand has nosedived. Revenue for the first three months of the year totaled just $102.9 million and was down 67% year over year.

While there's hope that interest-rate hikes may be slowing down or even coming to a halt, there isn't that much optimism that the stock will go higher. The stock has risen 300% this year, even more than C3.ai. But with a consensus analyst price target of $18.85, there's a potentially big risk that the stock will lose more than 60% of its value.

Investors also pay a premium for this AI stock, which trades at 6x revenue and 6x book value. The risk for investors is that Upstart is even more volatile than C3.ai as its beta value is nearly 1.6.

Upstart Holdings' top line can swing suddenly and significantly due to changing demand. This potentially makes it even riskier than C3.ai.

Even if companies are bullish on AI, they may not be as excited about the economy's prospects. Until there's a rosier outlook for the economy and loan demand is stronger, I'd avoid Upstart's stock.