Investor enthusiasm wanes for Palantir and Tesla stocks

Two AI Stocks to Avoid as They Struggle Investors are becoming cautious about AI tech companies like Palantir Technologies and Tesla. Three years since OpenAI's ChatGPT launch, excitement around generative AI is fading. Both companies now face challenges that make their high stock prices hard to justify. Palantir Technologies has seen its shares drop 36% from an all-time high of $125 in mid-February. Initially, the company’s integration of AI into its data analytics platform boosted its stock. However, this hype is fading. The company's connections to political figures like Trump are unclear in terms of benefit. Furthermore, expected budget cuts in defense spending could hurt Palantir, which relies heavily on government contracts for its revenue. Although the company is growing, its sales growth rate has slowed from 47% in 2020 to 29% in 2024. With high company costs, including $281.8 million in stock-based compensation, its stock may not be worth buying. Tesla is also facing serious issues. Its stock saw rapid growth related to generative AI and Trump’s election, but now it faces reputational damage. Analysts note that this damage is affecting sales, especially in Europe where sales fell by 76% compared to last year. While Tesla's sales in China remain strong, rising competition could pose risks. Currently, Tesla's valuation is also high, with a price-to-earnings (P/E) ratio of 118, but slowing sales make it hard to justify. Though the company is exploring AI and self-driving technologies, investors should avoid its stock for now. Between the two, Palantir seems at higher risk of further decline due to its overvaluation. Tesla faces hurdles also, but its ongoing technology developments could offer potential growth in the future. Investors should keep an eye on Tesla while staying away from both stocks for the time being.