2 Hot AI Stocks to Consider Selling Before a Potential 25% Drop

In the high-flying world of artificial intelligence stocks, where valuations often defy traditional metrics, it's easy for investors to get swept up in the euphoria. However, even within this burgeoning sector, some "hot" stocks may be poised for a significant correction.

According to analysis, two particular AI names stand out as potential sell candidates that could see their share prices fall by as much as 25% in the near term: Palantir Technologies (NYSE: PLTR) and BigBear.ai (NYSE: BBAI).

First, let's examine Palantir Technologies. This data analytics and AI software company has certainly captured investor imagination, but its current valuation raises serious red flags. Palantir is trading at an "extreme valuation," with a staggering price-to-sales (P/S) ratio of 107.

While the company boasts impressive revenue growth—total revenue surged 39% year-over-year, with its U.S. commercial segment growing an even more robust 71%—and maintains healthy 20% operating margins, its current market capitalization of $317 billion alongside such an elevated P/S ratio suggests it is significantly overvalued.

Even assuming continued strong growth, the stock's current price likely bakes in decades of future success, making substantial long-term gains from this entry point highly improbable. For investors prioritizing prudent risk management, it may be time to consider divesting.

Next is BigBear.ai, an AI pure-play that, while not as astronomically valued as Palantir (trading at a P/S of 12), faces fundamental business challenges that undermine its investment case.

BigBear.ai's most pressing issue is its remarkably slow revenue growth, which clocked in at a mere 5% last quarter. For a company operating in the rapidly expanding AI sector, this pace is concerningly sluggish, especially when compared to peers.

Furthermore, its gross margins are notably low at 21.3%, falling far short of the typical 50%+ seen in healthy software companies. Compounding these issues, BigBear.ai has consistently struggled with negative free cash flow, indicating ongoing cash burn. Despite a significant 441% gain over the past year, the company appears to be struggling to establish a strong competitive footing against rivals within the booming AI industry, making it a prime candidate for a strategic sell.

Read Next: Elon's $34 Trillion “Final Challenge”

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