Palantir Technologies (PLTR 0.31%) and Tesla (TSLA 3.62%) are two of the most popular stocks among individual investors, but some Wall Street analysts think shareholders will see potentially catastrophic losses in the next year, as detailed below:
- Brad Zelnick at Deutsche Bank has a sell rating on Palantir stock. His target price of $35 per share implies 61% downside from its current share price of $90.
- Ryan Brinkman at JPMorgan Chase has a sell rating on Tesla stock. His target price of $130 per share implies 52% downside from its current share price of $273.
Here's what investors should know about Palantir and Tesla.
NASDAQ: PLTR
Key Data Points
Palantir Technologies: 61% implied downside
Palantir develops data analytics software for commercial and government customers. The company in 2023 released an artificial intelligence (AI) platform called AIP, adding support for natural language processing to its core products, Gotham and Foundry. AIP has been a huge success because it lets clients inject generative AI into decision-making workflows, helping them understand complex information and identify the next best action.
Several analysts have praised Palantir's technological prowess since AIP went live. International Data Corp. (IDC) recognized its leadership in decision intelligence software, and Forrester Research recognized the company as a leader in artificial intelligence and machine learning platforms, awarding AIP higher scores than similar products from Alphabet's Google and Microsoft.
Palantir reported strong fourth-quarter financial results, beating expectations on the top and bottom lines. Its customer count increased 43%, and the average existing customer increased spending by 20%. In turn, revenue rose 36% to $828 million, the sixth straight acceleration, and non-GAAP (generally accepted accounting principles) earnings soared 75% to $0.14 per diluted share
Palantir is chasing a massive market opportunity. IDC expects AI platform sales to increase at 41% annually to reach $153 billion by 2028. But even the tremendous addressable market does not justify the current valuation. Shares trade at 220 times adjusted earnings, which is very expensive for a company whose earnings are forecast to grow 37% in 2025.
Personally, I doubt Palantir shares will decline 61% in the next year, but I do think the stock is overvalued. Investors should look elsewhere for buying opportunities right now, while keeping Palantir on their watch lists. I would feel more comfortable adding to my position if the stock fell to about $70 per share.
NASDAQ: TSLA
Key Data Points
Tesla: 52% implied downside
Tesla reported disappointing fourth-quarter financial results. Revenue increased 2% to $26 billion, operating margin contracted 2 percentage points, and non-GAAP earnings rose only 3% to $0.73 per diluted share. But the company has a key catalyst on the horizon in the launch of autonomous ride-sharing (robotaxis) in Austin, Texas, in June.
My feelings on Tesla are mixed. In the positive column, the company has an important data advantage due to its unmatched fleet of camera-equipped vehicles, which hints at superior AI powering its autonomous driving software. And its decision to rely solely on computer vision (rather than integrating lidar and radar like Alphabet's Waymo) makes its robotaxis much cheaper and far more scalable.
In the negative column, CEO Elon Musk has become a central figure in the Trump administration, and politics is divisive. Musk has alienated prospective buyers and possibly tarnished the Tesla brand. Its sales in Europe fell 50% in January and 47% in February, despite strong growth in the broader electric car market, according to The Wall Street Journal.
Tesla has always been difficult to value due to its aspirations in autonomous driving and robotics, but the addition of political risk has made the situation even more challenging. Nevertheless, Wall Street estimates earnings will increase 10% in 2025, making the current valuation of 112 times adjusted earning look outrageous.
In that sense, the stock could fall sharply in the coming months, especially if the political backlash escalates or the robotaxi launch does not go as planned. But if Musk disentangles himself from politics and makes good on long-standing promises concerning autonomous driving and robotics, Tesla could be worth much more in the future.
