AI Stocks Like Nvidia, Tesla, and Palantir: An Emerging Risk on Wall Street
The excitement surrounding generative AI is fading, raising concerns for major players like Nvidia, Tesla, and Palantir Technologies.
1. Nvidia
Nvidia has surged 421% in the past three years, becoming a leader in the AI sector by providing the graphics processing units (GPUs) essential for training advanced algorithms. Recently, the company reported a remarkable 94% increase in fiscal 2025 third-quarter revenue, reaching $35.1 billion. However, there are initial signs suggesting that this impressive spending might not continue indefinitely.
MIT professor Daron Acemoglu warns that AI may never tackle problems complex enough to justify its development costs. Additionally, the rise of affordable, open-source large language models (LLMs) like China’s DeepSeek could pose challenges for Nvidia’s clients, undermining their ability to profit from high GPU expenses.
Despite its rapid growth, Nvidia’s forward price-to-earnings (P/E) ratio stands at 30, which is more affordable than the average of 33 for the Nasdaq-100. This suggests that some of Nvidia’s long-term issues may already be considered in its stock price, potentially shielding it from significant risks compared to its peers.
2. Tesla
Tesla is attempting to transition from a car manufacturer to a serious player in AI by investing heavily in Dojo, an AI supercomputer designed to advance its self-driving technology. Should this initiative succeed, it could significantly increase the company’s software-as-a-service revenue. However, achieving this goal is uncertain.
Even CEO Elon Musk has described the Dojo project as a “long shot”—highlighting the low probability of success against its high potential reward. The automotive industry currently dominates Tesla’s sales, accounting for 77% of its revenue, and the company is facing stagnant demand, with fourth-quarter revenue dropping 8% to $19.8 billion year-over-year.
Furthermore, Tesla’s forward P/E ratio of 127 is significantly higher than the Nasdaq-100 average, suggesting its shares may be vastly overvalued given its unspectacular growth and the ambiguity surrounding its AI strategy.
3. Palantir Technologies
Palantir Technologies has also seen substantial gains, with its stock climbing 757% over the last three years. The excitement around the company stems from its potential to integrate AI into government and military contracts. However, while its growth is commendable, its stock price appears detached from reality.
In its latest quarter, Palantir reported a year-over-year revenue increase of 36%, totaling $827.5 million, fueled by the popularity of its AI-driven data analytics tool among U.S. commercial clients. Nevertheless, it faces intense competition from major players like Microsoft, which offers similar services through its platform called Fabric. As a result, it’s unclear what makes Palantir’s offerings unique enough to fend off its powerful rivals.
With a staggering forward P/E ratio of 200, Palantir’s valuation does not seem to correspond with its modest growth and competitive risks. The financial markets can behave irrationally, yet the magnitude of Palantir’s overvaluation suggests a significant correction may be on the horizon. Investors may want to tread carefully regarding these AI-related stocks.
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*Stock Advisor returns as of February 3, 2025
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views expressed in this article represent those of the author and do not necessarily reflect those of Nasdaq, Inc.
