2 Popular AI Stocks to Sell Before They Fall 65% and 73%, According to Certain Wall Street Analysts

In the rapidly evolving world of artificial intelligence (AI), investors are grappling with the challenge of identifying the next big winners and avoiding potential losers. According to certain Wall Street analysts, two popular AI stocks, NVIDIA (NVDA) and Advanced Micro Devices (AMD), may be at risk of significant declines, potentially falling by 65% and 73%, respectively. This article explores the factors contributing to these predictions and the potential catalysts that could trigger such substantial drops.

NVIDIA (NVDA) and AMD: The AI Stocks in Question
NVIDIA, a leading semiconductor company, has been a significant beneficiary of the AI boom, with its stock price soaring over 60% through the first eight months of 2023. Similarly, AMD, another prominent semiconductor company, has experienced a notable rally, with its stock price rising over 50% during the same period. However, these gains have raised concerns about potential overvaluation and the sustainability of their valuations.

Valuation Concerns and Mixed Earnings Reports
One of the primary factors contributing to the predicted declines in NVDIA and AMD stocks is their high valuations. The forward price-to-sales (P/S) ratio for these companies has risen significantly since the launch of ChatGPT, with NVIDIA's P/S ratio increasing to 35. While this is not at the extremes seen during the dot-com era, it warrants caution, as the market may be overestimating future AI revenues.

Recent earnings reports from major tech companies have revealed a shift in Wall Street's sentiment, with mixed results across the sector. While Meta posted strong earnings, Amazon's stock fell due to a cautious revenue outlook, and Microsoft reported slowing growth in its Azure cloud services. Alphabet surprised investors with sharply higher costs, overshadowing its better-than-expected sales. These mixed results have prompted a reassessment of positions and significant multiple contractions across the sector.

Concentration Risk and Market Timing
The rally in AI stocks has been concentrated among a small group of large US companies, leading to concerns about over-concentration and potential market leadership changes. Just 15 companies accounted for more than 90% of the returns of the S&P 500 Index from January through June, raising questions about a potential bubble and the possible implications for the market.

Investors must navigate the complexities of investing in exponential technologies like AI while managing concentration risk and market timing. Historical perspectives on valuations, including the dot-com bubble, provide valuable context for investors looking to capitalize on the potential of AI technologies while avoiding overvaluation and market bubbles.

Potential Catalysts for Significant Declines
Several potential catalysts could trigger a 65% and 73% decline in NVIDIA and AMD stocks, respectively. These include:

1. Market Saturation and Slowdown in AI Adoption: As AI becomes more prevalent, the market may reach a saturation point, leading to a slowdown in adoption and investment. This could result in reduced demand for AI-related products and services, impacting the revenue growth of AI stocks.
2. Regulatory Challenges and Scrutiny: Increased regulatory scrutiny and potential restrictions on AI technologies could hinder the growth and adoption of AI, negatively impacting AI stocks.
3. Economic Downturn and Reduced Capital Expenditures: A global economic downturn or recession could lead to reduced capital expenditures (capex) by businesses, including those in the AI sector. This could result in lower demand for AI-related products and services, impacting the revenue growth of AI stocks.
4. Technological Breakthroughs and Disruptions: Rapid technological advancements and breakthroughs in AI could lead to the emergence of new competitors or displace existing AI companies, causing a decline in their stock prices.
5. Geopolitical Risks and Trade Tensions: Geopolitical risks and trade tensions could disrupt global supply chains and impact the demand for AI-related products and services, negatively affecting AI stocks.



Conclusion
While NVIDIA and AMD have been significant beneficiaries of the AI boom, their high valuations and the potential for market saturation, regulatory challenges, economic downturns, technological disruptions, and geopolitical risks could trigger substantial declines in their stock prices. Investors should carefully consider these factors and the potential catalysts for significant declines when evaluating their portfolios and making investment decisions. As always, it is essential to conduct thorough research and consult with a financial advisor before making any investment decisions.

Important note: This article is for informational purposes only and should not be considered as financial advice. Always consult with a licensed financial advisor before making investment decisions.