3 Top AI Stocks That Could Crash in 2025

Generative artificial intelligence (AI) has taken Wall Street by storm since the launch of OpenAI's ChatGPT in 2022. However, more than two years on, this hype cycle is getting long in the tooth. Let's discuss why Nvidia (NASDAQ: NVDA), Tesla (NASDAQ: TSLA), and Palantir Technologies (NASDAQ: PLTR) could face downside risk as AI excitement potentially fades in 2025 and beyond.

1. Nvidia

Up 421% over the last three years, Nvidia has made itself the standard bearer of the AI industry by selling the graphics processing units (GPUs) that train and run these advanced algorithms. Booming demand allowed it to grow fiscal 2025 third-quarter revenue by 94% to $35.1 billion. That said, there are some early signs that this level of spending is unsustainable.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

According to MIT professor Daron Acemoglu, AI technology may never be capable of solving problems complex enough to justify its development costs. And the emergence of low-cost, open-source large language models (LLMs) like China's DeepSeek could make it even harder for Nvidia's clients to profit from its astronomical GPU spending.

The good news is that despite Nvidia's high growth rate, its forward price-to-earnings (P/E) ratio of just 30 is relatively affordable compared to the Nasdaq-100 average of 33. This discount suggests that some of Nvidia's long-term challenges may already be priced into its valuation, and shares may not face as much downside risk as other companies on this list.

2. Tesla

Tesla is a car company desperately trying to rebrand itself as an AI company by pouring billions into building Dojo -- an AI supercomputer designed to support its autonomous driving strategy. If successful, these efforts could transform the company by generating more high-margin software-as-a-service revenue. But that is a big "if."

Image source: Getty Images.

Alarmingly, even Tesla's CEO Elon Musk has called Dojo a "long shot" with a potentially high payoff but a low probability of success. The problem is that the market is treating the AI pivot as a done deal when it isn't. Tesla is clearly still a car company. The automotive business represents 77% of its total sales. And it is struggling with stagnating demand. Fourth-quarter revenue dropped 8% to ($19.8 billion) year over year.

Meanwhile, Tesla's forward P/E of 127 is almost four times the Nasdaq-100 average, making its shares look wildly overvalued considering its lackluster growth rate and the uncertainty about its AI transition.

3. Palantir Technologies

Like Nvidia, Palantir Technologies is another big AI winner, with shares up 757% over the last three years. The company is exciting because of its potential to introduce AI technology into the world of government and military contracts. But while Palantir's growth is respectable, its stock valuation seems to have completely lost touch with reality.

Fourth-quarter revenue grew 36% year over year to $827.5 million, driven by the popularity of its AI-enhanced data analytics tool, particularly with U.S. commercial clients. Though Palantir's business is growing, it is far from the only game in town. Cloud computing giant Microsoft offers a similar platform called Fabric. And it is unclear what "secret sauce" Palantir has that deep-pocketed rivals can't replicate.

With a forward P/E multiple of 200, Palantir's valuation doesn't seem to reflect its modest growth and the potential threat from competition. To be fair, financial markets aren't always rational. But the sheer scale of Palantir's overvaluation makes a serious dip likely. Investors may want to stay far away from all of the AI stocks on this list for the time being.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $346,349!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,160!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $554,176!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Learn more »

*Stock Advisor returns as of February 3, 2025

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Nvidia, Palantir Technologies, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.