Wall Street recently experienced a moment akin to the Super Bowl.
Nvidia’s (NASDAQ:NVDA) much-anticipated quarterly earnings were set to reveal the impact of the artificial intelligence (AI) boom on the markets. In the aftermath of the report, Nvidia and other AI stocks have continued to surge.This underscored the importance of identifying AI stocks to sell before potential downturns.
And once again, the chip making-giant did not disappoint. Nvidia reported a staggering 265% revenue surge year over year (YOY), significantly boosting investor sentiment. This event highlighted the pivotal role of AI in driving market dynamics.
For many analysts, it brings heightened risk as nearly two-thirds of the S&P 500‘s 24% gain in 2023 attributed to tech companies. Critics caution that the profitability of AI technology remains uncertain, posing a potential threat to investors.
Let’s explore three AI stocks to sell that could see their recent gains disappear if this rally reverses.
Palantir (PLTR)
Palantir (NYSE:PLTR) specializes in big data analytics, offering software that allows organizations to integrate, manage, and analyze vast amounts of information. The company operates in sectors such as defense, intelligence, law enforcement, finance, and healthcare.
Palantir’s Advanced Integration Platform (AIP) is central to its offerings, facilitating the analysis of complex datasets to identify patterns and insights. AIP supports decision-making processes by providing a comprehensive and scalable solution for data-driven challenges. This product has helped PLTR climb over 250% over the last 52 weeks.
Recently, banking giant HSBC downgraded Palantir’s stock rating to hold, citing valuation as a primary concern. Similarly, Jefferies analyst Brent Thill also noted Palantir’s valuation as swollen.
“Stock had a huge outperformance last year on the hype of AI. And I think what we’re seeing is AI is a driver, but it’s going to be a slower revenue materialization to the overall impact of the story, and many stories, including Microsoft and others,” Thill told Yahoo Finance.
“So we are huge fans of what’s going to happen due to AI. But, again, as we said that the hype is ahead of the reality.”
C3.AI (AI)
C3.ai (NYSE:AI) is another major beneficiary of the AI wave. The company’s software enables organizations to harness the power of AI, big data, and cloud computing to develop, deploy, and operate enterprise-scale AI applications more efficiently.
Also, C3.ai delivers a suite of enterprise AI products that enable organizations to deploy scalable AI applications. These products encompass predictive maintenance, fraud detection, energy management, and customer engagement solutions. This is one of the key reasons AI stock is up about 50% over the last 52 weeks.
Despite the hype, the company’s forward-looking guidance has failed to incorporate this much-anticipated boost from AI. Recently, the company reported a Q3 loss of $0.13 per share, narrower than anticipated. Revenue was up just 17.6% from a year ago, coming in at $78.4 million.
C3.ai offered revenue guidance for this quarter of between $82 million to $86 million. Although higher than estimates, the implied sequential growth is less than 10%.
“We look to get more constructive should the growth profile of the business accelerate and as underlying profitability begins to flow through the model,” Morgan Stanley (NYSE:MS) analyst Sanjit Singh said.
Singh has an Underweight rating and a $21 per share price target on this AI stock. His price target implies a downside risk of more than 30%.
Snowflake (SNOW)
Snowflake (NYSE:SNOW) is a data storage and analytics business. With its cloud-based platform, enabling scalable, secure, and efficient data warehousing, Snowflake allows businesses to scale resources to meet their needs without compromising performance.
In the realm of AI, Snowflake facilitates machine learning and AI-driven analytics by seamlessly integrating with popular AI tools and frameworks. This integration enables users to unlock valuable insights from their data, enhancing decision-making and innovation.
Snowflake was yet another major beneficiary of the AI wave that created havoc on Wall Street. However, the story quickly deteriorated following the release of the fourth-quarter earnings report and the unexpected departure of its CEO, Frank Slootman, who immediately retired from the role but will remain on the board.
Sridhar Ramaswamy, the former Senior Vice President of AI, steps in as the new CEO, marking a surprising shift that has left Wall Street needing time to adjust, according to Evercore ISI analyst Kirk Materne.
Snowflake’s projection of $3.25 billion in product revenue for fiscal 2025 shows a 22% increase. So, it fell short of analysts’ expectations of $3.43 billion, especially concerning given its 38% growth in the recent fiscal year.
Furthermore, CFO Mike Scarpelli labeled the forecast as conservative, citing it was based on previous consumption patterns and did not include upcoming products currently in public previews. The company’s fiscal first-quarter forecast also disappointed, with product revenue estimates between $745 million to $750 million, below the anticipated $759 million.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.