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These Wall Street analysts are forecasting major losses for Palantir and Micron shareholders.
Palantir and Micron are popular artificial intelligence trades, but some Wall Street analysts think the stocks are overvalued at current prices. Palantir has a competitive advantage in unique software, but the stock is very expensive compared to forward earnings estimates. Micron has benefited greatly from a memory chip supply shortage, but growth could slow sharply once the cycle has peaked.
Palantir develops analytics and artificial intelligence (AI) software that helps clients in the public and private sectors manage and make sense of complex data. Forrester Research has recognized the company as a leader in AI platforms and AI decisioning software, and the International Data Corporation (IDC) has ranked Palantir as a leader in decision intelligence software. Palantir has differentiated itself with an ontology-based software architecture, which becomes more effective as underlying machine learning models capture more data, unlike typical analytics software. Palantir reported impressive financial results in the fourth quarter, with revenue increasing 70% to $1.4 billion and non-GAAP net income up 79% to $0.25 per diluted share, achieving an unprecedented Rule of 40 score of 127%. Despite strong fundamentals, the stock trades at 209 times adjusted earnings, a very rich valuation, suggesting a sharp fall if future financial reports do not impress the market. Investors should keep positions in Palantir relatively small.
Micron develops memory and storage solutions, including DRAM and NAND flash memory products critical for artificial intelligence, serving personal computers, mobile devices, data center servers, and automotive systems. As the third-largest supplier, Micron gained market share primarily due to a supply shortage, not a sustainable competitive moat, as memory chips are largely commoditized. While Micron delivered strong first-quarter financial results, with revenue soaring 56% to $13.6 billion and non-GAAP net income increasing 167% to $4.78 per diluted share, this growth was driven by price increases from the supply shortage. The memory chip industry is cyclical, and a future supply glut could cause prices to crash. Despite a seemingly cheap valuation of 33 times adjusted earnings, analysts predict a sharp decline in earnings after fiscal 2027. Investors should exercise caution and keep Micron positions relatively small due to the cyclical nature of the memory chip market and the absence of a strong economic moat.