The stock market has thrived for most of the past several years, riding the hard-blowing tailwinds of artificial intelligence (AI). But over time, market enthusiasm can turn into euphoria. It doesn't happen with every bull market, but this artificial intelligence-fueled market run has begun to create some bubbly pockets within the technology space.
There are currently several stocks trading at egregious valuations that are highly likely to crush investors when the music stops or gravity sets in.
Here are four of the scariest stock valuations I see right now. Consider avoiding these stocks for the time being.
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1. IonQ
Wall Street is excited for quantum computing's admittedly high potential. IonQ (IONQ +2.78%) is one of several companies trying to marry quantum computing with commercial applications. The stock has appreciated by over 700% over the past three years as expectations build that quantum computers will unlock a new era of innovation.
NYSE: IONQ
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However, it's very early for quantum computers, which remain highly prone to errors and with few real-world use cases. IonQ expects to finish 2025 with up to $110 million in revenue, valuing the stock at an astounding 149 times sales.
Investors may want to think twice about paying a valuation that steep for a company that faces competition within the quantum computing space, and still has a very unpredictable total addressable market. There is probably far more downside than upside potential here.
2. Palantir Technologies
Most AI discussions center on hardware, but Palantir Technologies (PLTR 2.29%) has emerged as a juggernaut in the AI software space. The company develops custom applications for government and commercial clients that use machine learning and AI to analyze data and produce actionable insights.
NASDAQ: PLTR
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There's no denying that Palantir's growth has taken off like a rocket since the company launched its AIP platform in mid-2023. Palantir's AI success has sent the stock on a blistering run. Shares are up by 2,000% over the past three years -- those are life-changing returns for someone with even a modest sum invested.
Unfortunately, it seems unlikely that this can continue. Shares have outrun Palantir's impressive growth, soaring to a price-to-sales ratio of 114 and a price-to-earnings ratio of 407. The stock's valuation reflects years of future success, and the downside is tremendous if growth lets up even a little bit.
3. CoreWeave
Shares of CoreWeave (CRWV 0.57%) have nearly doubled since the stock went public earlier this year. The company builds data centers for AI and other high-performance applications, and then rents out the computing power to customers. Given the market's thirst for AI infrastructure stocks, CoreWeave's early investment returns probably shouldn't surprise anyone.
NASDAQ: CRWV
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That said, there are numerous risks within CoreWeave's business. For instance, its business depends on continued demand for AI compute, which isn't a given if hyperscalers pull back. Additionally, CoreWeave is horrendously unprofitable. Despite trailing 12-month revenue of $4.3 billion, the company has a free cash flow loss of $8 billion.
It's hard to see a case where CoreWeave makes a cash profit anytime soon. That means CoreWeave must dilute investors by issuing new shares and borrowing to grow, and the business already has over $18 billion in long-term debt. The stock's market cap of nearly $30 billion seems far too high given the frightening financials brewing here.
4. Lucid Group
Electric vehicles became a hot industry following Tesla's success. Lucid Group (LCID +0.43%) has tried to follow Tesla's playbook, launching its first model, the luxury sedan Lucid Air. To Lucid's credit, the Air got rave reviews across the industry. But the stock price hasn't reflected that achievement, and Lucid has lost most of its value since going public.
But despite the stock plunging 88% over the past three years, this is probably not a buy-the-dip opportunity. The company's struggles to grow sales and production volumes have resulted in steady cash losses that have required equally steady investments from Saudi Arabia's Public Investment Fund (PIF), its primary financial backer. It has diluted common shareholders over time.
The stock currently trades at over 21 times trailing 12-month sales, even after its staggering decline. That makes Lucid Group one of the most expensive automotive stocks on the market, a poor position to be in given that the federal EV tax credit has now expired, and more consumers are struggling to make ends meet. The stock is down for good reason, so I would avoid Lucid Group until the business fundamentals improve dramatically.
