2 Popular AI Stocks: Palantir stock (PLTR) and Tesla stock (TSLA)

2 Popular AI Stocks: Investing in artificial intelligence (AI) stocks can be a promising way to capitalize on the growing tech landscape.

Palantir Technologies and Tesla have been two of the most popular stocks among retail investors, particularly last year, as indicated by significant net inflows. However, many Wall Street analysts anticipate declines for both stocks in the coming year.

Palantir Technologies (PLTR)

Analyst Outlook
Among the 23 analysts covering Palantir, the median target price is set at $39 per share, suggesting a 62% downside from the current price of $102. Brent Thill of Jefferies is notably bearish, assigning a sell rating with a target price of $28, indicating a potential 73% decline.

Recent Performance
Palantir reported impressive fourth-quarter results, surpassing both revenue and earnings estimates. Sales rose 36% to $828 million, marking the sixth consecutive quarter of sequential growth. Adjusted net income surged 75% to $0.14 per diluted share.

CEO Alex Karp highlighted the company’s strong position in the AI sector, stating, "Our business results continue to astound." Despite this, analysts remain skeptical, with consensus estimates projecting a 17% growth in adjusted earnings over the next four quarters. This makes the current valuation of 248 times earnings appear excessive. Thill referred to Palantir as "the most expensive software name."

Shifting Perspectives
Despite the cautious outlook, some analysts are more optimistic. Morningstar recently raised its target price for Palantir to $90, up from $21 in November 2024. Analyst Mike Giarelli noted the company’s rapid growth amid the AI boom and its strategic positioning, suggesting it could become a leading software powerhouse.

The International Data Corporation forecasts that AI platform spending will grow by 41% annually through 2028, indicating strong growth potential for Palantir.

Investment Considerations
While there’s potential for Palantir’s future growth, investors should be wary of its current valuation. Although I believe the stock will eventually be worth more, any negative news could lead to a sharp decline. Therefore, shareholders concerned about significant corrections may want to reduce their positions, especially if those holdings comprise a large portion of their portfolio.

Conversely, investors who can tolerate volatility might consider buying into the stock during dips. For example, purchasing a small amount if the price falls by 10% and adding more if it drops another 10% could be a viable strategy.

Tesla, Inc. (TSLA)

Analyst Outlook
For Tesla, 52 analysts have set a median target price of $278, implying a 29% downside from its current price of $390. Ryan Brinkman at JPMorgan Chase is particularly bearish, giving a sell rating with a target price of $135, suggesting a 65% decline.

Recent Performance
Tesla stock rises again. Tesla’s fourth-quarter results were disappointing, with revenue increasing by only 2% to $26 billion as the company lost market share in the electric vehicle (EV) sector. Operating margins contracted by 2 percentage points, primarily due to price reductions that lowered the average selling price. Adjusted earnings increased by 3% to $0.73 per diluted share, largely thanks to a $600 million boost from Bitcoin.

Long-Term Potential
Despite recent challenges, Tesla's long-term outlook remains robust. The company has invested heavily in autonomous driving technology, positioning itself to monetize its full self-driving (FSD) capabilities. With more driving data than competitors like Alphabet's Waymo, Tesla has a significant advantage in training its AI models.

CEO Elon Musk has expressed confidence in launching robotaxi services in cities like Austin, Texas, by 2025, potentially tapping into a $10 trillion market. Additionally, Musk sees significant opportunities in humanoid robots, believing that Tesla's Optimus could become its most valuable product.

Investment Considerations
Wall Street expects Tesla's adjusted earnings to rise by 19% over the next four quarters, but its current valuation of 160 times earnings appears steep.

Conclusion

Both Palantir and Tesla face challenging forecasts from analysts, with significant potential downsides predicted. However, each company possesses unique growth opportunities within the AI and tech landscapes. Investors should conduct thorough research and consider their risk tolerance before making investment decisions, especially in such volatile sectors.

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.