Shares of these tech giants are climbing on momentum in AI spending.
Analysts believe revenue growth for both companies could slow, which could cause the market to repricing the stocks.
A company uses large amounts of debt to grow, which increases risk.
10 stocks we like better than Palantir Technologies ›
this S&P 500 Index(SNPINDEX:^GSPC) 2025 will end on a high note. After more than three years of a strong bull market, the widely watched stock index is near all-time highs. Technology stocks have been driving the index’s gains, driven by big tech companies’ huge spending on new artificial intelligence (AI) data centers and investor optimism about AI’s potential to boost profits.
But some of the biggest companies leading the stock market higher may have been a little too hasty. Even as AI spending continues to soar, investors are still paying a premium based on unreasonable expectations for sales and earnings growth. As a result, some Wall Street analysts believe many of the bull market’s biggest winners face significant downside risks. Two very popular stocks deserve special attention.
Palantir Technology(NASDAQ: PLTR): RBC Capital has a price target of $50, which represents a 74% downside from the stock price at the time of writing.
core weaving(NASDAQ: CRWV): DA Davidson has a price target of $36, which represents a 54% downside from the stock price at the time of writing.
Here’s why analysts are so bearish on these popular stocks and why readers may want to avoid them.
Image source: Getty Images.
Palantir helps businesses make sense of all the data they collect and generate. As the amount of data generated in daily business continues to increase, the total addressable market for Palantir is huge. It has taken a major step towards capturing this potential market in 2023 with the launch of its Artificial Intelligence Platform (AIP).
AIP allows Palantir users to take advantage of large language model capabilities. It enables them to interact with data and Palantir models using natural language. This significantly reduces the technical expertise required to fully utilize the software and expand its use cases across the enterprise. Management pointed to AIP as the reason for its accelerated revenue and profitability growth.
Last quarter, Palantir’s revenue grew 63%, with U.S. commercial revenue climbing 121%. As it scales, Palantir exhibits tremendous operating leverage. Adjusted operating margin for the quarter was 51%. This gives Palantir a 40-point rule score (revenue growth plus operating margin) of 114. The rule states that any number above 40 is considered worthy of investment.
To be sure, Palantir is showing extremely impressive growth, suggesting it’s capturing a huge addressable market. But investors don’t just want to buy great companies; They want to pay a fair price. It’s hard to argue that Palantir’s current share price is fair value. Its forward price-to-earnings ratio of 268 and price-to-sales ratio of over 100 are sky-high. The market is pricing Palantir as if revenue will accelerate forever. Analysts at RBC Capital warned that multi-year U.S. commercial contracts could boost demand. So it wouldn’t be surprising to see revenue growth decline in the near future.
CoreWeave builds and equips data centers and leases capacity to customers, e.g. Microsoft, NVIDIAOpenAI and meta platform. The company is growing rapidly, with revenue growing 134% in its most recent quarter.
However, CoreWeave is highly leveraged. It signed large contracts with customers before it had the ability to serve them. It uses these contracts as collateral to obtain loans to fund new data centers, servers and equipment. As a result, it now has $14 billion in debt on its balance sheet, double what it had a year ago.
Many point to strong revenue growth and its faster backlog growth as reasons why CoreWeave’s debt strategy is sound. CoreWeave’s backlog of revenue climbed to $55.6 billion at the end of last quarter. In just six months, that number has more than doubled.
But a backlog of orders doesn’t guarantee revenue. Many customers can reduce or terminate their contracts. Any mistakes can result in lost revenue opportunities. That’s why investors fell after management reported that one of its data center developers was experiencing supply chain delays. If CoreWeave doesn’t have capacity, it can’t be rented.
But there’s another problem with CoreWeave’s reliance on debt, DA Davidson analyst Gil Luria noted. Unit economics just don’t make sense. CoreWeave pays more in interest than it generates operating income. The company’s adjusted operating income last quarter was $217 million. Operating profit margin compressed significantly by 5 percentage points to 16%. Meanwhile, its interest expense exceeded $310 million. Luria believes CoreWeave needs to continue to expand operating margins to become profitable. Otherwise, taking on more debt will only lead to greater losses.
Even with the stock price plummeting after management revised its fourth-quarter outlook, investing in CoreWeave still carries significant risks. Another data center delay, a curtailment of spending by large customers, or a further deterioration in margins could cause the stock to fall further.
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Adam Levy works at Meta Platforms and Microsoft. The Motley Fool has positions and recommendations at Meta Platforms, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: Long January 2026 Microsoft calls at $395 and short January 2026 Microsoft calls at $405. The Motley Fool has a disclosure policy.
Two incredibly hot stocks are on sale ahead of plummeting 54% to 74% in 2026, according to select Wall Street analysts Originally Posted by The Motley Fool
