Published Date : 23-07-2025
Artificial intelligence (AI) is poised to significantly impact corporate America's growth trajectory. According to PwC, the combination of consumption-side effects and productivity improvements driven by AI will contribute $15.7 trillion to global GDP by 2030. With such a massive addressable market, it's no surprise that public companies involved in AI hardware and applications have seen their stock prices rocket higher.
However, historical trends suggest that next-big-thing technologies often lead to speculative bubbles, and AI is unlikely to be an exception. Some of today's leading AI stocks may soon become tomorrow's losers. In this article, we explore three market-leading AI stocks that could plunge 50% or more in the coming months or years.
The first megacap AI stock that could take a significant hit is Palantir Technologies (NASDAQ: PLTR). While Palantir is an excellent business, its valuation is unsustainable. Palantir's AI- and machine learning-driven software-as-a-service platforms, Gotham and Foundry, are highly valued for their unique capabilities. Gotham is used by federal governments for mission planning, execution, data gathering, and analytics, while Foundry helps businesses make sense of big data. Both platforms are growing at double-digit rates and are not easily replicable by competitors.
Despite its strong business model, Palantir's valuation is extraordinarily high. Historically, megacap companies at the forefront of next-big-thing trends have seen their price-to-sales (P/S) multiples peak between 30 and 40. As of July 18, Palantir's P/S ratio was almost 123. Even if Palantir were to grow its sales by 30% annually over the next five years and its stock price remained flat, it would still be in bubble territory.
The second company on this list is NVIDIA (NASDAQ: NVDA), a pioneer in AI hardware. NVIDIA's GPUs are widely used in AI applications, from data centers to autonomous vehicles. However, the company's valuation has reached unprecedented levels, making it vulnerable to a significant correction. NVIDIA's P/E ratio is currently over 100, which is unsustainable in the long term, especially if the AI market cools down or faces regulatory challenges.
The third company is Alphabet (NASDAQ: GOOGL), the parent company of Google. Google has been a leader in AI research and development, with significant investments in machine learning and natural language processing. However, the company's valuation is also stretched, and its stock price has been driven by speculative buying. Alphabet's P/E ratio is currently over 30, which is high for a company of its size and scope. If the AI market experiences a downturn, Alphabet's stock could face a significant correction.
In conclusion, while AI is expected to drive significant growth, investors should be cautious about overvalued stocks. Palantir, NVIDIA, and Alphabet are three market leaders that may see a significant drop in their stock prices in the coming months or years. It's essential to diversify investments and avoid overexposure to highly valued AI stocks.
Q: What is the expected impact of AI on global GDP by 2030?
A: According to PwC, AI is expected to add $15.7 trillion to global GDP by 2030 through consumption-side effects and productivity improvements.
Q: Why is Palantir Technologies considered overvalued?
A: Palantir's price-to-sales (P/S) ratio is almost 123, which is significantly higher than the historical peak of 30-40 for leading companies in next-big-thing trends. This makes its valuation unsustainable.
Q: What makes NVIDIA vulnerable to a significant correction?
A: NVIDIA's P/E ratio is over 100, which is extremely high and unsustainable in the long term. If the AI market cools down or faces regulatory challenges, the stock could face a significant correction.
Q: Why is Alphabet's stock considered overvalued?
A: Alphabet's P/E ratio is over 30, which is high for a company of its size and scope. The stock price has been driven by speculative buying, making it vulnerable to a significant correction if the AI market experiences a downturn.
Q: What should investors do to protect themselves from AI stock corrections?
A: Investors should diversify their portfolios and avoid overexposure to highly valued AI stocks. It's essential to conduct thorough research and remain cautious about overhyped market leaders.