These tech giants have seen their share prices rise on the back of AI spending momentum.
Analysts see the potential for slowing revenue growth for both companies, which could cause the market to modify the stock price.
A company uses a lot of debt to grow, increasing risk.
10 Stocks We Like More Than Palantir Technologies ›
The S&P 500(SNPINDEX: ^GSPC) is preparing to close 2025 on a high note. The widely watched stock index is near an all-time high after a strong bull run that has lasted more than three years. Technology stocks were the driving force behind the index’s rise, fueled by big tech spending on new artificial intelligence (AI) data centers and investor optimism about AI’s potential to boost earnings potential.
But some of the biggest companies driving the stock market higher may have gotten ahead of it. Investors are paying a premium price based on unreasonable expectations for sales and earnings growth, even as AI spending continues to rise. As a result, some Wall Street analysts see significant downside to many of the bull run’s biggest winners. Two incredibly popular actions are worth highlighting.
Palantir Technologies(NASDAQ: PLTR): RBC Capital has a price target of $50, representing a 74% downside to the stock price at the time of writing.
CoreWeave(NASDAQ: CRWV): DA Davidson has a price target of $36, representing a 54% downside to the stock price at the time of writing.
Here’s why analysts are so bullish on these popular stocks and why readers may want to avoid them.
Image source: Getty Images.
Palantir helps companies make sense of all the data they collect and generate. With the increasing amount of data generated in everyday business, the total addressable market for Palantir is huge. And it took a major step toward capturing that potential market in 2023 with the launch of its Artificial Intelligence Platform (AIP).
AIP enables Palantir users to take advantage of the large capabilities of language models. It allows them to interact with their data and Palantir’s models using natural language. This significantly reduces the technical expertise required to get the most out of the software and expands its use cases across enterprises. Management points to AIP as the reason for accelerated revenue and profitability growth.
Last quarter, Palantir posted 63% revenue growth, with US commercial revenue up 121%. As it expands, Palantir exhibits significant operational leverage. Adjusted operating margin for the quarter was 51%. That gives Palantir a 40 score (revenue growth plus operating margin) of 114. The rule suggests that any number above 40 is considered investment-worthy.
Certainly, Palantir is showing extremely impressive growth, which indicates that there is a large addressable market that they are capturing. But investors don’t just want to buy great companies; they want to pay a fair price. It’s hard to argue that Palantir’s current stock price is fair value. Its forward P/E ratio of 268 and price-to-sales ratio exceeding 100 are both astronomically expensive. The market is pricing Palantir as if earnings will accelerate forever. RBC Capital analysts warn that multi-year US trade deals could drive demand. So a slowdown in revenue growth would not be too surprising in the near future.
CoreWeave builds and equips data centers and leases capacity to clients such as Microsoft, NvidiaOpenAI and Meta platforms. The company is growing rapidly, with revenue growing 134% in its most recent quarter.
CoreWeave is very leveraged though. He signs large contracts with his clients before he has the capacity to serve them. It uses those contracts as collateral to take out loans, which it uses to finance new data centers, servers and equipment. As a result, it now has $14 billion in debt on its balance sheet, double what it was at this time last year.
Many point to strong revenue growth and its even faster backlog growth as a reason why CoreWeave’s debt strategy is sound. CoreWeave’s outstanding revenue rose to $55.6 billion at the end of last quarter. That’s more than double in just six months.
But that backlog is not guaranteed income. Many of its customers can reduce or withdraw their contracts. And any slippage can result in lost revenue opportunities. That’s why investors sent shares lower following management’s report that one data center developer is facing supply chain delays. If CoreWeave doesn’t have the capacity, it can’t rent it.
But there’s another problem with CoreWeave’s reliance on debt that DA Davidson analyst Gil Luria points out. The unit economy just doesn’t make sense. CoreWeave pays more in interest than it generates in operating income. The company generated adjusted operating income of $217 million last quarter. Operating margin fell significantly by five percentage points to 16%. Meanwhile, interest expense topped $310 million. CoreWeave needs to show growing operating margins for it to scale profitably, Luria argues. Otherwise, taking on more debt will only lead to greater losses.
Even after the stock dropped following management’s revised outlook for the fourth quarter, there are still significant risks in investing in CoreWeave. Another delay in its data center, a spending cut from a big customer or further damage to its margins could send the stock even lower.
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Adam Levy has positions in Meta Platforms and Microsoft. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, Nvidia and Palantir Technologies. The Motley Fool recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.
2 Incredibly Hot Stocks to Sell Before They Fall 54% to 74% in 2026, According to Select Wall Street Analysts was originally published by The Motley Fool
