2 Hot AI Stocks to Sell Before They Fall 25%, According to Wall Street Analysts
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Everyone has fallen in love with artificial intelligence (AI) stocks, and for good reason. But that does not mean investors should buy stakes in these companies and ignore valuation, which always...
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July 7, 2025
06:00 PM
The Motley Fool
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Everyone has fallen in love with artificial intelligence (AI) stocks, and for good reason
But that does not mean investors should buy stakes in these companies and ignore valuation, which always matters in the long run
Plenty of AI stocks have soared by three-figure percentages in the last year
This makes them dangerous to buy if you ignore fundamental analysis
Palantir nologies (PLTR 3. 54%) and BigBear
Ai (BBAI 0. 32%) are two hyped AI stocks that are up big in the last year
Wall Street analysts -- who typically give aggressive price targets -- have consensus targets for both stocks that are 25% below where they trade today
Here's why investors who own Palantir and BigBear
Ai should sell right now
Image source: Getty Images
Palantir's extreme valuation Palantir is one of the fastest growing software and AI es in the world
It works with governments, large organizations, and big es to organize and analyze reams of data using AI
This has led to some tremendous growth
Last quarter, its total revenue rose 39% year over year to $884 million
Revenue grew 55%, while U
Commercial revenue grew an astonishing 71% year over year, which shows how fast AI applications are growing in this country
Palantir is also highly fitable, generating 20% operating margins last quarter, or $176 million in operating income
Investors have fallen in love with the stock
It's up almost 400% in the last 12 months, crushing the market averages and making holders wealthier
Today, it trades at a market cap of $317 billion, making it one of the largest companies in the world by market capitalization
Wall Street is now cautious Palantir's spects, with a price target of $107. 90 compared to the current price (at the time of this writing) of around $135
I believe the downside may be even more severe in the years to come
Palantir's stock trades at a price-to-sales ratio (P/S) of 107, which puts unsustainable expectations on the future growth of the
Let's do some quick math to illustrate
The company's trailing revenue is $3. 11 billion
Even if it can multiply its revenue tenfold over the next 10 years -- a scenario that is unly unless you are extremely optimistic its spects -- it will be doing around $31 billion in revenue a decade from now
If Palantir generates 30% fit margins in 10 years, that will equate to around $10 billion in annual earnings, or a price-to-earnings ratio (P/E) above 30 compared to the current market cap (P/E takes market cap and divides by earnings)
This makes the s extremely overvalued
Even if the most optimistic growth scenario plays out, the stock will ly not be much higher in 10 years' time
Sell it at its P/S ratio above 100
BBAI PS ratio, data by YCharts
Burning cash flow and low growth With AI in its name, BigBear
Ai has been a thematic stock for investors
It is up even more than Palantir in the last year, for a 441% gain for holders at the time of this writing
Analysts have a consensus price target of $5. 83 compared to its present price of $7
The company offers AI-powered decision guidance for es
That is eerily similar to Palantir and is something that investors are falling head over heels to put into their portfolios today
With a P/S of 12, BigBear
Ai is not nearly as extreme as Palantir at 107
However, the looks a lot weaker than its competitor
Revenue growth is slow
Last quarter, sales increased only 5% to $34
Margins are weak: Gross margin is only 21. 3% compared to the typical software/digital company above 50% or more
Free cash flow was a negative $42 million over the last 12 months and has never been positive
Ai is barely growing even during a time when the AI industry is expanding gangbusters
This indicates to me that the company is not a leader in its space and is struggling versus the competition
Combined with low fit margins and negative free cash flow, it's a sell after its meteoric rise in the last 12 months
Brett Schafer has no position in any of the stocks mentioned
The Motley Fool has positions in and recommends Palantir nologies
The Motley Fool has a disclosure policy.
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