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

Some Wall Street price targets imply declines of ~55% for Palantir and as much as 62% for Fastly vs. recent closes. Palantir trades at ~84.1x forward EPS despite Q4 FY25 revenue +70% to $1.4B, ~$4.3B of Q4 contracts (up 138% YoY) and a GAAP net income margin of 43%, raising valuation risk. Fastly trades >70x forward EPS with a median target of $14 (-47%) and a bearish $10 target (-62%); FY25 revenue rose 15% to $624M, non-GAAP gross margin 61% and non-GAAP net income $19.7M, but it faces volatile demand and 2026 capex guide of ~10–12% of revenue. Overall, strong recent fundamentals coexist with stretched multiples and analyst-driven downside risk for both names.

Analysis

Winners will be companies that own the underlying infrastructure for AI (GPU makers, data-center network and interconnect vendors) and CDN/edge players that can monetize rising AI traffic without bearing the full egress cost. Losers are likely to be narrow-stack software vendors whose revenue is concentrated in a handful of large, lumpy contracts or those that must subsidize traffic growth with capex, creating margin volatility as usage normalizes.

Primary near-term risks are multiple compression and traffic reversion: if a few outsized deals do not reaccelerate or if bot/AI traffic proves transient, names with high revenue concentration and fixed-cost footprints will see outsized P&L swings within quarters. Medium-term catalysts that would reverse the bearish drift are durable multi-year enterprise contracts, binding hyperscaler partnerships that lock-in infrastructure spend, or supply constraints on GPUs that shift value capture back to software vendors.

Second-order effects to watch: if edge/CDN providers pass through AI-driven egress costs to customers, incumbent cloud providers could bundle edge services to win share, compressing independent edge players’ TAM. Also monitor system integrators and managed service providers — they can act as distribution multipliers or choke points for adoption, particularly in regulated industries where integration risk dominates procurement decisions.

Key Decisions for Investors

• Short PLTR (6–12 month horizon): size 1–2% NAV as a directional short or buy 6–9 month put spreads to cap risk. Rationale: uneven revenue visibility and sentiment-driven multiple risk; set stop at 20% adverse move and target 30–50% downside for a 1.5–3x potential payoff.
• Short FSLY via 3–6 month put spreads or inverted call spread (limited risk) sized 0.5–1% NAV: target execution and capex disappointment during peak traffic seasonality, with risk defined by spread width. Take profits if quarterly guidance outpaces consensus or gross margins sustainably improve.
• Pair trade (market‑neutral relative value): short PLTR / long NVDA (beta‑hedged) sized to neutralize market moves, 6–12 month horizon. This captures potential re‑rating away from software multiple into hardware whose revenue is stickier if AI workloads require ongoing GPU consumption; expect asymmetric payoff if enterprise AI spending lags expectations.
• Small, contrarian optionality play: buy low-cost long-dated OTM calls on PLTR (12–24 months) financed by short-term puts (4–6 months) sized <0.5% NAV to capture a mean-reversion rally in adoption while maintaining limited downside if sentiment deteriorates.