Palantir Just Showed Why Nvidia Stock Can Plunge on May 21

Although the busiest week of earnings season is now in the rearview mirror, the most consequential report of the quarter is yet to come. Graphics processing unit (GPU) goliath Nvidia (NASDAQ: NVDA) is slated to lift the hood on its fiscal first-quarter operating results (ending April 26) after the closing bell on Wednesday, May 20.

While all signs continue to point to Nvidia delivering sales and profit growth that'll easily hurdle Wall Street analysts' expectations, artificial intelligence (AI) data-mining specialist Palantir Technologies (NASDAQ: PLTR) just showed investors why that might not be enough.

Image source: Getty Images.

History has a way of rhyming on Wall Street

For all intents and purposes, Palantir crushed expectations with its first-quarter operating results. Revenue soared 85% to $1.63 billion on the heels of 84% growth in U.S. government revenue and a more-than-doubling in U.S. commercial sales. CEO Alex Karp also upped Palantir's 2026 full-year sales guidance from 61% sales growth to a new projection of 71%.

Palantir is Wall Street's shining star of AI applications in action, with AI powering the Gotham software-as-a-service platform that the U.S. government relies on to plan and execute military missions.

Despite this staggering growth, Palantir shares have lost more than 8% of their value in the two days following its report. The likely reason behind this decline is that investors' expectations were too lofty.

Even with Palantir consistently beating Wall Street's consensus and raising its guidance, the company's valuation didn't become any less of an eyesore.

History has shown that every industry leader at the forefront of a game-changing technology has failed to maintain a price-to-sales (P/S) ratio above 30 for an extended period. Palantir entered 2026 at a P/S ratio above 100 and still boasts a P/S ratio north of 60. No sales guidance would have been enough to lift Palantir out of historical bubble territory.

Image source: Nvidia.

Nvidia is unlikely to meet the sky-high expectations of investors

When Nvidia takes center stage on May 20, it's a virtual lock to deliver jaw-dropping sales and profit growth. Its GPUs are unmatched in terms of compute capabilities, and the anchoring of customers to its product and service ecosystem by the CUDA software platform only enhances its growth.

But Palantir reminds us that history has a way of rhyming on Wall Street -- and not even AI kingpin Nvidia is exempt.

Every game-changing technology spanning more than three decades has endured an early stage bubble-bursting event brought about by investors overestimating its adoption and/or optimization. While demand for GPUs is off the charts, it'll likely take years for businesses deploying this hardware to optimize their sales and profits. In other words, the puzzle pieces for an AI bubble are firmly in place.

Nvidia is also contending with growing internal competition. Several of its top customers by net sales are developing GPUs or AI solutions for their data centers. Even though their hardware is inferior to the compute capabilities of Nvidia's GPUs, these internally developed chips are cheaper and more readily accessible. Internal competition runs the risk of minimizing the GPU scarcity that's helped fuel Nvidia's otherworldly pricing power and gross margin.

Even if Nvidia knocks it out of the park on May 20, history points to May 21 being a potentially rough day for the company's shareholders.

Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.