Is the AI Gold Rush Sustained or a Looming Bubble? The Risks of Overvalued AI Stocks Like CoreWeave and Palantir

The artificial intelligence (AI) sector has become the defining investment theme of the 2020s, with companies like CoreWeave and Palantir Technologies (PLTR) at the forefront of a speculative frenzy. Yet as late 2025 unfolds, growing concerns about overvaluation, unsustainable debt, and systemic risks are casting a shadow over the sector. For investors, the question is no longer whether AI will reshape the economy, but whether the current euphoria has created a bubble reminiscent of the dot-com crash.

CoreWeave: A Tale of Explosive Growth and Financial Fragility

CoreWeave's third-quarter 2025 performance was nothing short of meteoric, with revenue surging 133.7% year-over-year to $1.36 billion and a backlog of $55.6 billion as of September 30. These figures have fueled optimism about the company's role in powering the AI infrastructure boom. However, the reality beneath the numbers is far more precarious. CoreWeave's share price has plummeted 46% year-to-date, erasing $33 billion in market value. Analysts remain divided, with a consensus "Hold" rating and a price target of $128.53, reflecting uncertainty about the company's ability to sustain its growth.

The risks are structural. CoreWeave operates with negative net margins and an Altman Z-Score indicating a high probability of bankruptcy within two years. Its reliance on debt financing-common in the AI sector-exposes it to a potential "capex winter" if demand for AI infrastructure slows according to analysis. Howard Marks of Oaktree Capital has warned that the sector's debt-driven expansion mirrors the speculative excesses of the late 1990s according to analysis, a comparison that grows harder to dismiss as CoreWeave's leverage and construction delays threaten its operational momentum according to reports.

Palantir: AI's Defense Sector Play Faces a Valuation Wall

Palantir Technologies, a key player in AI-driven defense and data analytics, has seen its stock rebound in December 2025 after a November sell-off. Despite this, the company's valuation remains contentious. With 23 analyst ratings in the past year-including two "Sell" and five "Buy" calls-the consensus price target of $172.28 implies a 7.6% downside from its current price of $186.49. The wide range of price targets-from $18.50 to $255.00-underscores deep skepticism about Palantir's ability to monetize its AI capabilities.

Palantir's challenges are emblematic of the sector's broader risks. While its defense contracts offer some stability, the company's reliance on speculative growth narratives-such as AI's transformative potential-has inflated its valuation beyond traditional metrics. Central banks have also flagged systemic risks tied to market concentration, noting that dominant players like Palantir and the "Magnificent 7" could trigger correlated failures if their debt-backed models falter.

The AI Sector's Structural Weaknesses

The broader AI sector is teetering on the edge of a bubble, driven by circular financing and overvaluation. Major players like OpenAI and Microsoft have created artificial demand by cross-investing in each other's infrastructure, inflating revenues without commensurate profitability. For example, OpenAI's ChatGPT generated $4.3 billion in revenue in the first half of 2025 but posted a $13.5 billion loss, a 314% loss-to-revenue ratio. Such models are unsustainable without massive revenue growth, a scenario Deutsche Bank has deemed unlikely by 2030.

Valuation metrics further amplify the risks. The S&P 500's forward P/E ratio and the Nasdaq 100's even more elevated multiple suggest a market detached from fundamentals. The Buffett Indicator, which compares total market cap to GDP, has surpassed levels seen during the dot-com bubble. Meanwhile, AI-related debt is projected to reach $1.5 trillion by 2028, posing systemic threats if returns fail to materialize.

Historical Parallels and Investor Caution

The parallels to the dot-com era are striking. In 2000, companies with no revenue and unproven business models were valued at stratospheric multiples, only to collapse when growth failed to materialize according to reports. Today, AI startups with similar characteristics-such as CoreWeave and Palantir-are trading at valuations that assume perpetual growth. Goldman Sachs' CEO has warned of a potential 10–20% market correction, while JPMorgan analysts note that AI's "gold rush" is showing cracks as investors question whether the sector can deliver on its promises.

Conclusion: Navigating the AI Gold Rush

The AI sector's potential is undeniable, but its current trajectory is fraught with risks. For CoreWeave and Palantir, the path forward hinges on their ability to convert speculative optimism into sustainable profitability. However, the broader structural weaknesses-excessive debt, overvaluation, and market concentration-suggest that a correction is not just possible but probable. Investors must weigh the allure of AI's transformative power against the historical reality that speculative bubbles, once inflated, inevitably burst.

As Howard Marks aptly noted, the real danger may not be a collapse of equity prices but a credit market dislocation that devastates the secondary ecosystem of AI infrastructure providers. For now, the AI gold rush continues, but prudence-not exuberance-should guide investment decisions in this high-stakes arena.