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The synthetic intelligence (AI) gold rush is in full swing. The tech-heavy Nasdaq Composite is up 31% in the past year as investors rushed into the market in hopes of getting rich. Sentiment is still burning, but it’s vital to be selective when buying stocks. Not every single company will come out on top in the long run, and even the most productive company is not a smart investment at all costs.
With this in mind, some Wall Street analysts see a really extensive drop in two popular AI stocks, Tesla (TSLA 0. 66%) and Palantir Technologies (PLTR 3. 46%). Here’s what investors know.
JPMorgan Chase’s Ryan Brinkman cut his revenue and profit estimates for Tesla earlier this month when the company announced first-quarter deliveries that beat expectations by a wide margin. Brinkman also lowered its year-end value target to $115 per share, implying a 29% decrease from the existing value of $161 in line with the stake.
Tesla has a wake-up call. Global EV sales grew just 31% last year, a significant slowdown from last year’s 60% growth, according to research firm Rho Motion. Growth markets naturally lose momentum over time, however, macroeconomic headwinds were the causal cause in this case. Maximum interest rates are a major deterrent to big-ticket purchases like electric cars, especially when there are less expensive options.
Tesla has been cutting prices to make up for falling demand, but this has slowed growth and hurt margins. The company has released a series of disappointing financial reports over the past year, culminating in a dismal fourth quarter. Revenue increased just 3% to $25. 2 billion, and the net source of non-GAAP (adjusted) revenue fell 40% to $0. 71 consistent with diluted equity. Management also warned that the rate of vehicle volume expansion could be much lower in 2024 as the company prepares to build its next second-generation (low-cost) vehicle in 2025.
The situation is more dire than Wall Street had anticipated. Tesla’s deliveries fell 8. 5% to 386,810 vehicles in the first quarter, below even the most pessimistic estimates. The company hasn’t noticed a drop in deliveries since the first quarter of 2020, and this is due to the COVID-19 pandemic. To make matters worse, Tesla has canceled plans to build a cheap electric car that could have expanded its potential market, according to Reuters.
There’s still bad news. Several executives have left Tesla in the past year, including former CFO Zach Kirkhorn, who had been touted as a possible successor to CEO Elon Musk. The company also announced plans to lay off 10% of its global workforce earlier this week, a sign that customer call may just get worse.
On the positive side, Tesla is doubling down on its synthetic intelligence (AI) ambitions. Musk has said that fully autonomous driving (FSD) software will ultimately be the main source of profitability, and the company plans to unveil its robotaxi on one occasion on Aug. 8. This may simply be a positive inflection point if the company provides express dates related to the launch of an autonomous ridesharing network. Or it can simply be a negative tipping point if the company fails to impress.
Investors deserve to keep in mind that Brinkman is rarely the only analyst to see significant downsides in Tesla. Wells Fargo’s Colin Langan recently lowered his 12-month value target to $120 per share, implying a 25% haircut. “We expect volumes to be disappointing as price cuts have a diminishing effect on demand,” he said in a note to clients.
Here’s the bottom line: Tesla remains the global leader in battery electric vehicle sales, but the company is grappling with demand and abandonment issues that could hinder expansion for the foreseeable future. As a result, the stock could fall in the immediate future. In the short term, especially if the company fails to reassure investors when it releases its first-quarter results on April 23. Personally, I plan to stay for now, without buying or selling, until control provides more visibility to your product roadmap.
At the end of 2022, RBC Capital’s Rishi Jaluria lowered his price target on Palantir Technologies to $5 per percentage following poor financial results. It stuck to that estimate, implying a 77% drop from the current value of $22 per percent. even though inventory has increased by 150% over the last year. These gains are due to the excitement generated by Palantir’s role in the synthetic intelligence cost chain and, to a lesser extent, its recent victory in the U. S. Army’s Titan contract. U. S.
Jaluria has raised concerns about Palantir’s ability to monetize generative AI, despite the company touting unprecedented demand for the Artificial Intelligence Platform (AIP), a new product that supports giant language models on its Foundry platform. To build this, Palantir sells software that allows consumers to manage and incorporate device knowledge and learning (ML) models into programs that facilitate decision-making. Its AIP product allows consumers to add generative AI features to Foundry.
Jaluria also attributes its bearish outlook to the valuation. “This is a company with 25 times higher profits and less than 20 percent growth, which is unheard of in the software industry,” he told Yahoo Finance in an interview in March. Since then, however, the point has remained in force. Wall Street expects Palantir to increase sales by 21% over the next five years, making its current valuation of 22. 6 times sales seem expensive, especially when the two-year average is 13. 7 times sales.
However, Jaluria might be too pessimistic when it comes to artificial intelligence. Wedbush Securities’ Dan Ives recently called Palantir a launchpad for AI, once saying that the company is “probably the most productive pure AI brand. “In addition, Forrester Research has identified Palantir as a leader among AI/ML platform providers.
Here’s the bottom line: I think Palantir will benefit from higher spending on AI, but the stock trades at a higher valuation relative to Wall Street’s forecasted sales growth. This can also lead to a very extensive pullback if the company doesn’t meet expectations when it releases its first-quarter report on May 6. For this reason, I believe investors avoid buying this inventory until it trades at a more moderate price. Perhaps it would also be prudent to reduce positions that are too large now, given the recent rally.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennevine holds positions at Palantir Technologies and Tesla. The Motley Fool holds positions and recommends JPMorgan Chase. Palantir Technologies and Tesla. The Motley Fool has a disclosure policy.
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