Two AI Stocks Wall Street Warns Could Decline 50%+: Palantir and Sandisk Under Scrutiny

Recent momentum in artificial intelligence stocks has turned heads on Wall Street, but not all attention is positive. Two companies that have delivered extraordinary gains—Palantir Technologies and Sandisk—now face significant skepticism from major financial analysts. Despite impressive recent performance, these AI stocks may be trading at valuations that leave little room for error.

Over the past year, Palantir Technologies (NASDAQ: PLTR) has climbed 128%, while Sandisk (NASDAQ: SNDK) has soared 1,280%. These remarkable gains reflect investor enthusiasm for companies positioned in the artificial intelligence boom. However, several Wall Street analysts believe the current prices don’t justify the fundamentals, suggesting substantial downside potential for both securities.

Palantir’s AI Platform Faces Valuation Questions

Palantir develops analytics platforms that enable commercial organizations and government agencies to process and interpret complex information. The company’s approach centers on custom workflows built by dedicated engineers, creating high customer retention. What sets Palantir apart is its decision-making framework called an ontology, which serves as the foundation for its technology stack.

The company’s true competitive advantage lies in its artificial intelligence capabilities. Palantir’s AI platform allows clients to embed large language models directly into their analytics applications, essentially supercharging their core decision-making systems with generative AI capabilities. This innovation has earned recognition from Forrester Research, which recently ranked Palantir as a leader among AI decisioning platforms.

Morgan Stanley’s Sanjit Singh has praised the company’s execution, noting that “Palantir is not only delivering the best growth in public company software but also the best profitability in all of software.” He concluded that finding a better fundamental story in software would be difficult. Revenue has accelerated for nine consecutive quarters, which represents genuine operational success in the competitive AI stocks landscape.

Yet valuation tells a different story. Palantir currently trades at 101 times sales—an extraordinarily expensive multiple for a company whose sales are projected to grow at 43% annually through 2027. This valuation is several multiples higher than AppLovin, the second-priciest software company at 32 times sales. Jefferies analyst Brent Thill has set a target price of $70 per share, implying a 57% decline from recent levels. Such extreme valuations leave these AI stocks vulnerable to any negative catalysts or growth disappointments.

Sandisk’s AI-Driven Demand Creates Cyclical Risk

Sandisk manufactures data storage devices using NAND flash technology, working through a joint partnership with Japanese supplier Kioxia. The partnership allows both companies to share capital expenditures and research costs, improving profitability. Additionally, Sandisk maintains vertical integration across the supply chain—from wafer production through chip packaging to device design—providing competitive advantages that competitors cannot easily replicate.

The company ranks fifth among NAND flash suppliers and recently gained market share during the first half of 2025. Multiple hyperscalers have begun testing its storage products, with additional testing planned for 2026. Artificial intelligence infrastructure demand has created an unprecedented supply shortage in memory chips and storage products, positioning Sandisk as a direct beneficiary. Management expects this shortage to persist through the current year, driving triple-digit earnings growth in upcoming quarters.

Management projects adjusted earnings will increase at 79% annually through the fiscal year ending June 2029, which sounds impressive on the surface. However, the current valuation of 205 times earnings reflects these rosy assumptions being priced in completely. The memory chip market is inherently cyclical—today’s supply constraints will eventually give way to oversupply, causing flash prices to collapse. J.P. Morgan analyst Harlan Sur has set a target price of $235 per share, implying 53% downside from current levels.

Understanding the Risks in Today’s AI Stocks

Both companies represent the double-edged sword of investing in hot AI stocks. While their fundamentals tell compelling stories—Palantir’s innovative AI platform and Sandisk’s exposure to storage-infrastructure demand—the market has gotten ahead of itself in pricing these securities.

The common thread between these situations is extreme valuation risk. When stocks trade at such elevated multiples, shareholders have little margin of safety. Any disappointment—whether from slower growth, increased competition, or changing market dynamics—could trigger sharp corrections. This is particularly concerning in the AI stocks sector, where investor enthusiasm often outpaces fundamental reality.

Investors should recognize that cyclical industries like memory chips and rapidly-evolving software markets create inherent risks that are difficult to predict. Those considering these AI stocks should wait for more reasonable entry points. Current shareholders with substantial positions should evaluate trimming their stakes to lock in gains and reduce exposure to potential downside.

A Cautionary Approach to AI Stock Investing

The long-term success stories exist—Netflix, recommended to investors in December 2004, returned 460x on investment, while Nvidia, recommended in April 2005, delivered 1,123x returns. These examples demonstrate that identifying winning AI stocks early can create generational wealth. However, timing and valuation matter enormously.

Today’s AI stocks environment resembles past market enthusiasms where valuations eventually reset lower. Rather than chasing momentum in expensive securities like Palantir and Sandisk, investors may find better opportunities among less-promoted AI stocks trading at more sustainable valuations. The current risk-reward for these two companies strongly favors caution over commitment.