2 AI Stocks Wall Street Says to Sell Before They Drop 55%

Artificial intelligence (AI) stocks have been among the market's best performers in the past couple of years. However, that surge has also pushed the companies' valuations to extreme highs, increasing the risk of a correction in the coming months.

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Software stocks have already wiped out more than $1 trillion in market value earlier in 2026 amid concerns that AI could disrupt the industry. But, even after that sell-off, some AI stocks are trading at stretched valuations that appear disconnected from the fundamentals. Wall Street analysts now see further downside in these two stocks, with some price targets implying declines of more than 55%.

Palantir Technologies

Palantir (NASDAQ: PLTR) is a prominent enterprise AI stock that some Wall Street analysts believe investors should consider selling, despite its strong recent performance. Jefferies analyst Brent Thill is one of them. He has maintained an "Underperform" rating for the stock with a $70 price target, nearly 55% lower than the stock's last closing price (as of March 19, 2026). The concern is about the company's expensive valuation even after its latest results. Palantir trades at roughly 84.1 times forward earnings, leading some analysts to argue that the stock price has run far ahead of its fundamentals.

However, Palantir's recent performance has been exceptionally strong. In the fourth quarter of fiscal 2025 (ending Dec. 31, 2025), the company's revenues surged 70% year over year to $1.4 billion, driven largely by strong demand for its artificial intelligence platform (AIP). The company also closed contracts worth roughly $4.3 billion in Q4, up 138% year over year.

The accelerating adoption of AIP is driving customers to sign larger deals. This momentum is helping boost the company's profitability, with the company reporting a GAAP net income margin of 43% in Q4. Supporters also highlight AIP and the company's ontology framework (which relates clients' physical assets, interrelationships, and processes to their digital counterparts) as major competitive advantages that can sustain long-term growth, despite the high valuation.

Fastly

Fastly (NASDAQ: FSLY) operates an edge cloud platform that helps deliver websites, apps, and digital content faster and more securely by handling data traffic closer to end users. As AI adoption grows, more automated traffic, bots, and AI-driven workloads are flowing through Fastly's edge network.

However, some Wall Street analysts remain cautious. Fastly's median target price of $14 is nearly 47% below its last closing price. Citigroup analyst Fatima Boolani has given one of the most bearish price targets in the past few months, at $10, which is 62% below the closing price at the time of this writing.

Fastly trades at over 70 times forward earnings, which is a very high valuation level. The company's growth is also volatile, as it depends on unpredictable customer traffic. The company highlighted that the strong Q4 2025 demand may not repeat. Fastly is also facing rising infrastructure costs, with capital spending expected to reach 10% to 12% of revenue in 2026.

But the company's financial performance is improving. In fiscal 2025 (ending Dec. 31, 2025), revenue grew 15% year-over-year to $624 million, non-GAAP gross margin reached 61%, and the company delivered its first profitable fiscal year with non-GAAP net income of $19.7 million.

While Fastly's turnaround is encouraging, its combination of high valuation, execution risks, and high capex makes it a risky bet in 2026.

Citigroup is an advertising partner of Motley Fool Money. Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fastly, Jefferies Financial Group, and Palantir Technologies. The Motley Fool has a disclosure policy.