2 AI Stocks to Sell Before 2025 (Hint: Nvidia's Not One)

Core Insights - Early investors in Palantir and Arm Holdings have seen significant returns, but it may be prudent to take profits before 2025 due to potential market corrections [1] Company Analysis: Palantir Technologies - Palantir's third-quarter earnings grew 30% year over year to $726 million, with adjusted EBITDA increasing 39% to $283.6 million, but these figures are overshadowed by a forward P/E multiple of 172, indicating a potential overvaluation [2] - The company faces competition from rivals like Microsoft Fabric and Snowflake, which offer similar enterprise data analytics solutions and can enhance their offerings with generative AI, challenging Palantir's unique value proposition [5] - Despite a 370% increase in share price year to date, Palantir's high valuation may not be sustainable given its fundamentals [8] Company Analysis: Arm Holdings - Arm's fiscal second-quarter revenue increased by only 5% year over year to $844 million, primarily driven by smartphone demand, which constitutes 35% of its royalty revenue; however, the smartphone market is maturing, potentially limiting future growth [13] - The company's forward P/E ratio stands at 67, suggesting that new investors should seek better opportunities elsewhere due to the disconnect between valuation and fundamentals [6] - Arm's role in the hardware ecosystem is significant, but it may not benefit as much from AI-related demand as anticipated, with shares up 75% this year, indicating that AI hype may be overshadowing its actual performance [14] Industry Outlook - The AI industry may face a reckoning by 2025 as the market begins to prioritize fundamentals over hype, which could impact companies like Palantir and Arm Holdings that struggle to justify their high valuations [4] - The S&P 500 index has an average forward estimate P/E of 24, while Nvidia, a leader in the AI industry, trades at 31 times projected earnings despite a 168% profit growth in its third quarter, highlighting the disparity in valuations within the sector [12] - Concerns are growing in Silicon Valley regarding the sustainability of the current AI hype cycle, with high-profile AI startups like OpenAI facing significant financial challenges [15]