AI Stocks to Sell Before 2025: Nvidia's Not the Only One at Risk

As the AI hype cycle slows down, investors should be cautious about overvalued AI stocks. While Nvidia (NVDA) is not one of the stocks to sell, there are two other AI stocks that might be at risk. Let's dive into the details and see why these companies could be vulnerable in the coming years.

1. Palantir Technologies (PLTR)
Palantir's stock has surged 370% year-to-date, driven by the AI hype cycle and its data analytics business niche. However, its forward P/E multiple of 172 is significantly higher than the S&P 500's average of 24 and Nvidia's forward P/E of 31. This high valuation makes Palantir vulnerable to price corrections if earnings growth doesn't meet expectations.

Moreover, competition from established players like Microsoft Fabric and Snowflake could erode Palantir's competitive advantage. These companies offer alternative enterprise data analytics solutions integrated into their existing cloud computing platforms, which can be enhanced with generative AI. As the AI hype cycle slows down, investors may prioritize fundamentals over hype, leading to a reassessment of Palantir's valuation and potential stock price declines.

2. Arm Holdings (ARM)
Arm Holdings' stock has risen 75% so far this year, but its forward P/E of 67 suggests that the market expects significant earnings growth. If earnings growth doesn't meet expectations, the stock could be vulnerable to price corrections. Additionally, the mature smartphone market, which accounts for 35% of Arm's royalty revenue, could lead to declining revenue from this segment over the long term.

While Arm's architecture is popular in various devices, its role in the global hardware ecosystem may not be enough to drive significant growth in the AI-related demand. As the AI hype cycle slows down, investors may become more cautious about Arm's high valuation and limited growth potential from AI chips.

In conclusion, while Nvidia is not one of the AI stocks to sell, investors should be aware of the potential risks and challenges facing Palantir Technologies and Arm Holdings as the AI hype cycle slows down. These companies' high valuations, competition from established players, and market dynamics could impact their future growth prospects and stock prices. As always, investors should stay diligent about their investments and consider the potential impact on future growth prospects when evaluating AI stocks.