Investors benefited from a notable relief rally in the first half of 2023. The sell-off in late 2021 and most of 2022 was the worst period for many investors since the 2008-09 financial crisis, so one could argue that a recovery was overdue.

Unfortunately for some stocks, the returns were so high that valuations rose to unsustainable levels. Hence, investors should proceed with caution regarding the following investments.

Nvidia

The rally in Nvidia (NVDA -2.25%) is understandable, given the recent popularity of artificial intelligence (AI). Nvidia is currently the dominant chip design company for AI chips, so as more industries turn to AI-driven solutions, Nvidia is a natural and massive beneficiary.

Also, AI does not fully represent its strength in the GPU market. GPUs have driven considerable revenue growth from gaming and data centers.

However, the stock price may overrepresent its potential. Despite a recent pullback, Nvidia stock is up an astounding 190% since the beginning of the year. Moreover, after record revenue in the second quarter of fiscal 2024 (ended July 30), its P/E ratio stands at around 100.

Admittedly, the stock should eventually rise from current levels amid years of anticipated AI-driven growth. But for now, Nvidia is arguably priced for perfection. That indicates that investors should wait to buy more shares.

C3.ai

C3.ai (AI 3.16%) is an enterprise software company leveraging AI to support a diverse group of clients. Its strong ties to the AI industry may have contributed to a 290% increase in the stock price in the first five months of the year.

AI Chart

AI data by YCharts

The stock has since pulled back, giving up more than half that gain, a move that left the stock's price-to-sales (P/S) ratio at 10. But revenue rose by only 11% in the first quarter of fiscal 2024 (ended July 31) and 6% in fiscal 2023.

Indeed, the company's outlook points to a 15% revenue increase at the midpoint this fiscal year. But considering those ongoing losses, investors may balk at paying 10 times sales, meaning the AI stock's performance is likely to worsen before it improves.

Carvana

Carvana (CVNA 0.19%) is up an astounding 730% year to date. Once on the brink of bankruptcy, a debt restructuring plan temporarily reduced its interest costs as Carvana offered assets up for collateral in exchange for debt relief.

This buys Carvana two years to build the used car retailer into a sustainable business. Nonetheless, the debt payments related to this deal will resume again after two years, but at much higher interest rates than before the deal.

Additionally, the company has never earned a profit, and most analysts do not expect it to turn profitable over the next two years. That could mean that once interest payments resume, investors may again fear for the company's survival.

Carnival Corporation

Carnival Corp. (CCL -1.07%) stock has risen by about 70% this year amid a dramatic recovery in the cruise industry. The pandemic hammered Carnival and its peers as pandemic-related restrictions shut down their operations for over a year.

CCL Chart

CCL data by YCharts

Carnival likely rose as bookings and revenue surpassed pre-pandemic peaks and reached record levels. Consequently, it is probably safe to say it has survived the pandemic.

Unfortunately, the pandemic left Carnival with just under $35 billion in total debt, a tremendous burden considering its market cap of around $18 billion. Given the amount of the debt, it will probably have to refinance some of its obligations at higher interest rates. That makes reducing debt and adding capacity more difficult, which could weigh on the cruise line stock for years.

Coca-Cola

Admittedly, turning against Coca-Cola (KO -1.13%) may seem counterintuitive. Coca-Cola is one of the world's most recognized brands, and more than 100 years after its initial public offering, it is among the S&P 500's more prominent dividend stocks and one of the largest dividend payers in Berkshire Hathaway's portfolio.

But its payout may be its problem. Its 61 years of consecutive dividend increases is impressive, but it also puts tremendous pressure to maintain that streak. The payout is on track to cost Coca-Cola nearly $8.4 billion this year, taking up most of the $9.5 billion in free cash flow it expects to generate.

That may partially explain why Coca-Cola stock has underperformed the S&P 500 over the last five years. Additionally, Berkshire has not bought any shares since 1994, a further indication that the stock is a hold at current levels.