Palantir Technologies (PLTR 3.41%) and Super Micro Computer (SMCI 0.58%) 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.
NASDAQ: PLTR
Key Data Points
Palantir Technologies: Jefferies forecasts 62% downside
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.
NASDAQ: SMCI
Key Data Points
Super Micro Computer: Susquehanna forecasts 74% downside
Super Micro Computer manufactures servers and storage systems. The company prides itself on being first to market, often by a few months, when suppliers like Nvidia release new chips. Internal engineering expertise and a "building block" approach to product development make that possible. Those qualities have helped Super Micro secure a leadership position in the AI server market, according to Counterpoint Research.
However, Susquehanna analyst Mehdi Hosseini says Super Micro lacks a proprietary advantage. He argues there is nothing unique about the company that will prevent larger competitors like Dell from eventually taking market share in AI servers. "Super Micro doesn't really do the innovation. They are a contract manufacturer with willingness to commit working capital," Hosseini told Barron's last year.
The innovation is done upstream by chipmakers like Nvidia and manufacturers like Taiwan Semiconductor, and pricing power lies with the innovators. For instance, Nvidia can sell its chips to whichever server maker is willing to pay the most. It has no obligation to work with Super Micro. But Super Micro does have an incentive to purchase Nvidia GPUs because they are widely considered the best AI accelerators on the market.
Super Micro has been under scrutiny since August, when short seller Hindenburg Research published details concerning "accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures." A special committee appointed by the Board found no evidence of wrongdoing, but Super Micro is still out of compliance with the SEC.
The company has not published its Form 10-K for fiscal 2024, nor has it published its Forms 10-Q for the first two quarters of fiscal 2025. In other words, shareholders have not seen externally audited financial results for the better part of a year. Additionally, Super Micro recently cut its revenue outlook by 13% for fiscal 2025, though it did provide encouraging guidance for fiscal 2026.
Here is the bottom line: I would avoid buying Super Micro stock until the regulatory issues have been resolved. And current shareholders should think about trimming large positions. Given the recent dearth of information, the stock could move sharply in either direction when Super Micro finally files its overdue annual and quarterly reports later this month.
