2 Overvalued AI Stocks to Sell Before They Plunge 40% and 72% in 2026

The artificial intelligence (AI) sector has long been a magnet for speculative fervor, but 2025 has seen the flames of enthusiasm burn even brighter-often at the expense of fundamentals. With the Buffett Indicator now above 200% and the S&P 500's price-to-earnings ratio near a five-year high, the market's exuberance has created a landscape rife with overvaluation risks. While AI's long-term potential remains undeniable, two high-flying names-Palantir Technologies (PLTR) and C3.ai (AI)-stand out as particularly precarious bets. Analysts and market signals suggest these stocks could plummet by 40% and 72%, respectively, by 2026. Here's why investors should consider selling now.

1. Palantir Technologies (PLTR): A Dot-Com-Level Overvaluation

Palantir's stock has surged in recent years on the back of its AI-driven data analytics platforms, but its valuation has become unsustainable. As of 2025, the company trades at a forward price-to-sales (P/S) ratio of 79.2x, dwarfing even its AI peers like C3.ai (7.03x). This disconnect raises red flags, especially when compared to historical benchmarks for tech bubbles.

The cracks are already showing. Despite reporting strong third-quarter earnings, Palantir's stock price dropped 8.35% in a single session. RBC Capital analyst Rishi Jaluria has warned that the stock could fall 72% by 2026, citing its "astronomical" P/S ratio of 117x in the trailing 12 months. Such a valuation assumes Palantir will maintain monopoly-like margins indefinitely-a bet that seems increasingly unrealistic as competitors like Snowflake and Databricks gain traction.

Michael Burry, the investor who famously shorted the 2008 housing bubble, has likened Palantir to a dot-com-era bust. His analogy is apt: Palantir's business model relies heavily on government contracts and opaque metrics, making it vulnerable to shifts in policy or investor sentiment. With the Buffett Indicator already signaling a broader market overvaluation, Palantir's sky-high multiples make it a prime candidate for a sharp correction.

2. C3.ai (AI): A House of Cards Built on Hype

C3.ai, once a darling of the AI sector, has become a cautionary tale of overhyped expectations. The company's stock has plummeted 47% year-to-date in 2025, with Q1 2026 revenue declining from $73.5 million to $60.3 million. These numbers underscore a troubling reality: C3.ai's AI offerings have yet to translate into consistent revenue growth.

The company's woes are compounded by operational and leadership challenges. C3.ai has reported significant operating losses and lacks full-year revenue guidance, creating uncertainty for investors. Leadership changes and a lack of clear differentiation in its AI platform have further eroded confidence. As one analyst noted, "C3.ai's low valuation may appear tempting, but its high operating losses and inconsistent revenue growth suggest it remains a speculative bet" according to reports.

Morningstar analysts have also highlighted the broader risks facing AI-driven software firms. Many, like C3.ai, face dual threats: fears that AI will disrupt traditional software licensing models and a slowdown in post-pandemic demand. With Goldman Sachs warning of a potential 10–20% market drawdown in 12–24 months, C3.ai's precarious fundamentals make it a high-risk holding.

The Bigger Picture: A Market Correction Looms

The AI sector's current trajectory mirrors the dot-com bubble in key ways. The Buffett Indicator's 200% threshold and the S&P 500's elevated P/E ratio suggest the market is pricing in unrealistic growth scenarios. While Morgan Stanley argues the AI trade remains intact according to reports, the growing skepticism from investors like Michael Burry and institutions like Goldman Sachs has raised concerns about the sector's sustainability.

For Palantir and C3.ai, the risks are twofold: their valuations are already stretched, and their business models lack the durability to justify such multiples. As the sector consolidates, investors who cling to these names may find themselves on the wrong side of a correction.

Conclusion: Sell Before the Music Stops

The AI sector's long-term potential is undeniable, but the current market environment demands caution. Palantir and C3.ai represent two of the most overvalued and speculative plays in the space. With analyst projections pointing to potential declines of 72% and 40%, respectively, and broader macroeconomic indicators flashing red flags, now is the time to reassess exposure to these names.

Investors should prioritize companies with clear revenue synergies from AI, such as Microsoft or Adobe according to reports, while avoiding those that rely on hype rather than fundamentals. As the adage goes, "Don't fight the Fed"-but in this case, don't fight the math.

---