Palantir Technologies ( PLTR -2.04%) stock has surged by 105% so far this year, while CoreWeave ( CRWV 1.92%) has seen its shares climb 115%. Despite these impressive gains, the Wall Street analysts referenced here have given these stocks sell ratings, and their price targets suggest investors could face significant losses:
- Brent Thill from Jefferies assigned Palantir a 12-month price target of $60 per share. This projects a 61% drop from its current value of $155.
- Gil Luria from D.A. Davidson set CoreWeave’s 12-month price target at $36 per share, indicating a 59% fall from the present price of $88.
Here are some key points for investors regarding these widely followed artificial intelligence (AI) stocks.
Image credit: Getty Images.
Palantir Technologies: 61% projected decline
Palantir specializes in data analytics software. Its main platforms help users combine, structure, and display complex data to support decisions in defense, intelligence, and business environments. The company also offers an artificial intelligence platform (AIP) that allows developers to embed large language models in various workflows and applications.
What sets Palantir apart is its distinctive software design—its platforms are built around an ontology, digitally mapping an organization’s data, operations, and resources. “Our foundational investments in ontology and infrastructure have positioned us to uniquely deliver on AI demand,” stated CTO Shyam Sankar.
Palantir delivered robust results in the second quarter. The number of customers grew 43% to 849, and average spending per existing customer rose by 28%. As a result, revenue jumped 48% to $1 billion, marking its eighth consecutive acceleration, while non-GAAP earnings climbed 77% to $0.16 per diluted share.
There are strong reasons for investors to believe the company can sustain this progress. Grand View Research predicts annual spending on artificial intelligence will grow 36% through 2030, and decision intelligence platform spending will rise by 15% each year in the same timeframe. This suggests Palantir’s revenue might continue to expand at over 20% annually for the rest of the decade.
Nevertheless, Palantir faces a serious valuation challenge. With a price-to-sales ratio of 115, it is currently the highest-valued stock in the S&P 500 ( ^GSPC -0.32%) by a significant margin. No other company in the index trades at more than 30 times sales, so Palantir could lose 70% of its value and still be the priciest stock. Given this, there is a real risk that Palantir could experience a significant decline in the future.
CoreWeave: 59% projected decline
CoreWeave offers cloud infrastructure and software tailored for AI workloads. In conventional data centers, up to 65% of GPU computing power is lost due to inefficiencies, but CoreWeave’s GPU clusters achieve up to 20% higher performance versus competing clouds.
The company’s second-quarter results were mixed. Revenue soared 207% to $1.2 billion, and non-GAAP operating income increased 135% to $200 million. CoreWeave also reported its revenue backlog shot up 86%, thanks to expanded agreements with an unnamed hyperscale client and OpenAI. However, its non-GAAP net loss deepened to $131 million, much larger than the $5 million loss it posted a year earlier.
The main factor behind the gap between non-GAAP operating and net income is interest expenses. Running data centers, especially those focused on AI, is costly. CoreWeave has incurred significant debt to expand its infrastructure, with interest costs totaling $267 million in the last quarter.
Still, the company manages its borrowing prudently. CoreWeave only takes on new debt when signed contracts justify additional infrastructure, and only when the contract value exceeds the total debt cost. Despite this, the burden of interest payments is so great that the company likely won’t be profitable before 2027, making its stock subject to significant volatility.
Currently, CoreWeave trades at 10 times sales, which is quite reasonable given forecasts for its revenue to expand at an annual rate of 127% through 2026. For this reason, I find it highly unlikely the stock will fall by 59%. In fact, those comfortable with risk might want to consider purchasing some shares.
