Top AI stocks like Nvidia, Tesla, and Palantir may face downside risks as AI hype fades.

From Nasdaq: 2025-02-11 10:37:00

Generative artificial intelligence (AI) has been a hot topic on Wall Street since the launch of OpenAI’s ChatGPT in 2022, but the excitement may fade in 2025. Nvidia, Tesla, and Palantir Technologies could face downside risks as AI hype subsides. Nvidia’s revenue grew by 94% in fiscal 2025’s third quarter, but unsustainable spending may pose challenges.

MIT professor Daron Acemoglu suggests that AI technology may not justify its development costs. Nvidia’s clients could struggle to profit from high GPU spending due to competition like China’s DeepSeek. Despite Nvidia’s high growth rate, its forward P/E ratio of 30 is relatively affordable, potentially mitigating downside risks compared to other companies.

Tesla aims to transition into an AI company with its Dojo supercomputer for autonomous driving. However, CEO Elon Musk calls Dojo a “long shot” with uncertain success. Tesla’s automotive business accounts for 77% of total sales, with revenue dropping 8% in the fourth quarter. Its forward P/E ratio of 127 suggests overvaluation amid growth uncertainties.

Palantir Technologies, another AI winner, saw shares rise 757% in three years. Its AI-enhanced data analytics tool drove fourth-quarter revenue growth of 36%, but competition from companies like Microsoft poses a threat. Despite respectable growth, Palantir’s forward P/E multiple of 200 indicates overvaluation, with a potential market correction looming.

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Read more at Nasdaq: 3 Top AI Stocks That Could Crash in 2025