Nothing has garnered more attention on Wall Street since late 2022 than the rise of artificial intelligence (AI). Empowering software and systems with the tools to make split-second decisions without the need for human oversight is a game-changer that can benefit most industries around the globe.
While most Wall Street analysts share the belief that AI can positively transform corporate America, there are mixed views as to which AI stocks are destined to head higher.
Based on the price targets of select Wall Street analysts, three skyrocketing artificial intelligence stocks are expected to plummet between 71% and 80% over the next year.
Image source: Getty Images.
Palantir Technologies: Implied downside of 71%
Since 2023 began, shares of AI- and machine learning-powered data-mining specialist Palantir Technologies (PLTR +2.45%) have catapulted higher by more than 2,000%. This outperformance stems from Palantir's Gotham and Foundry platforms having no clear one-for-one replacements, which intimates that its software-as-a-service solutions enjoy a sustained moat.
Despite this irreplaceability, longtime Palantir bear Rishi Jaluria of RBC Capital Markets believes shares of the company will fall to $40. Based on a closing price of $137.30 per share on June 20, Jaluria's price target implies 71% downside over the next year.
NASDAQ: PLTR
Key Data Points
The prominent issue with Palantir is the company's valuation. Even though Wall Street typically assigns a premium multiple to companies with clear-cut competitive advantages like Palantir, it closed out June 20 with a trailing-12-month price-to-sales (P/S) ratio of 110! Historically, companies on the leading edge of a next-big-thing innovation have seen their bubbles burst at P/S ratios ranging from roughly 30 to 40. Palantir is approximately three times higher than the normal level where bubbles burst.
Palantir stock is also at risk if an AI bubble were to form and burst. Every game-changing technology since (and including) the advent of the internet has navigated its way through a bubble-bursting event. Though the multiyear contracts Palantir has landed with the U.S. government via Gotham, and its subscription-driven Foundry platform for corporate clients, can help the company avoid an immediate sales drop-off, investor sentiment would undoubtedly weigh on AI leaders like Palantir if the AI bubble bursts.
The other concern with Palantir Technologies is that its lead operating segment, Gotham, has a somewhat limited long-term ceiling. While Gotham has been able to sustain double-digit sales growth thanks to a number of large contracts wins with the U.S. government, there's a very limited pool of federal governments that can access/utilize Gotham. This makes its P/S ratio of 110 all the more egregious.
Image source: Getty Images.
Upstart Holdings: Implied downside of 72%
A second skyrocketing AI stock that at least one Wall Street analyst believes will plunge over the coming 12 months is cloud and AI-fueled lending platform Upstart Holdings (UPST +4.47%). The potential to use AI as a quick but accurate screening tool for personal loans can transform lending pools and increase the profit potential of financial institutions.
Even though shares of the company have rallied 165% over the trailing year (as of June 20), Goldman Sachs analyst Michael Ng sees shares heading for $16.50 over the coming year. If Ng is accurate, this would represent a plunge of 72%.
The primary reason to be skeptical of Upstart Holdings' stock is that the company isn't time-tested. Though it did endure some turbulence during the COVID-19 pandemic, it's not demonstrated its ability to weather an organic U.S. recession. When U.S. economic growth slows dramatically or shifts into reverse, it's not uncommon for personal and commercial loan activity to slow down and for loan delinquency rates to climb.
NASDAQ: UPST
Key Data Points
An AI-lending-based model like Upstart is also going to be sensitive to changes in the Federal Reserve's monetary policy. This is to say that consumers and businesses are more apt to borrow when lending rates are low or declining. Between March 2022 and July 2023, the nation's central bank increased interest rates at the fastest pace in more than four decades, which decisively sapped loan demand. Even though the Fed is now in a rate-easing cycle, it's really slow-stepping its actions, which can tamper down demand for loans.
Valuation is likely the other major concern for Ng. Upstart stock is valued at 39 times forecast earnings per share (EPS) for the current year and roughly 26 times forecast EPS for 2026. Since financial stocks are cyclical, they rarely boast aggressive earnings multiples -- especially when they're not time-tested.
CoreWeave: Implied downside of 80%
The third skyrocketing AI stock that can plummet over the next year, based on the forecast of one Wall Street analyst, is AI data-center infrastructure goliath CoreWeave (CRWV 2.27%). CoreWeave has purchased around 250,000 of Nvidia's (NVDA +1.67%) Hopper graphics processing units (GPUs) and expects to generate copious operating cash flow by providing compute capacity to businesses that need it.
However, D.A. Davidson analyst Gil Luria doesn't share in this optimism. Despite CoreWeave shares launching 360% higher since the closing bell following the company's initial public offering in late March 2025, Luria foresees shares retracing to $36. If Luria's price target proves correct, Nvidia-backed CoreWeave would lose 80% of its value.
NASDAQ: CRWV
Key Data Points
One of the biggest reasons to be skeptical of CoreWeave's historic run-up is the potential for its assets to rapidly depreciate in value. Nvidia CEO Jensen Huang is attempting to bring a new advanced chip to market annually. While doing so will help Nvidia maintain its compute advantages, it's almost certain to rapidly depreciate the value of previous-generation chips, such as the Hopper. In short, CoreWeave's asset may be worth far less than expected, and businesses may opt to look past CoreWeave's compute capacity as more advanced AI-GPUs hit the market.
Luria also shared concerns about the company's financing structure in his note to investors. Luria points to leveraged lending sources, such as unsecured notes and credit lines that can increase debt-servicing costs, as all the more reason to believe debtholders are in control at CoreWeave and shareholders won't benefit.
To round things out and keep with the theme, CoreWeave's valuation makes absolutely no sense. Despite its rapid sales growth, the company isn't profitable, nor is it (or artificial intelligence as a technology, for that matter) time-tested. Even if Wall Street's consensus estimate, which calls for 131% sales growth next year, proves accurate, CoreWeave is valued at close to 8 times sales. This is a premium price to pay for an unproven operating model.
