While AI hype has propelled the market since late 2022, with Nvidia's stock soaring 1,000%, three lesser-known AI-related companies—AppLovin, Rigetti Computing, and Palantir Technologies—have seen even more dramatic gains, rising 4,270%, 3,220%, and 2,000% respectively. Despite their impressive returns and AI integration, the article highlights significant valuation concerns and risks: AppLovin faces SEC scrutiny over data practices and trades at 93x trailing earnings, Rigetti's quantum computing promise far outpaces its minimal revenue and substantial losses, and Palantir's strong growth is overshadowed by an 'outlandish' $435 billion valuation and over 600x P/E multiple, suggesting these stocks are highly speculative and potentially overvalued.
What investors may have forgotten by now is how awful 2022 was for the markets. That year, the S&P 500 fell by more than 19%. It was the hype and excitement around artificial intelligence (AI) that led to a huge turnaround for the stock market. When ChatGPT was launched on Nov. 30, 2022, it wasn't long afterward that companies began promoting products and services that used generative AI capabilities. Nvidia played a big role in AI with companies relying on its advanced chips for developing their own AI models and products. Since the launch of ChatGPT, the tech company's stock soared by 1,000%. But as incredible as that is, there are three AI stocks that have performed even better over that time frame: AppLovin (APP -0.32%), Rigetti Computing (RGTI -1.62%), and Palantir Technologies (PLTR 0.79%). Here's why they have skyrocketed thanks to AI, and how strong their returns have been since then. AppLovin: up 4,270% AppLovin is in the ad tech business, helping developers monetize their apps. With the help of AI, AppLovin has been able to do that incredibly well, and it has resulted in monstrous growth, to the point where it sold off its mobile gaming segment to focus solely on advertising. Last year, advertising revenue grew by 75% to $3.2 billion, while revenue from its apps segment rose by just 3%, to $1.5 billion. Doubling down on ads makes the business less diverse, but it has made the stock a more attractive option for growth investors. On Monday, Oct. 6, however, the stock fell as investors learned that the Securities and Exchange Commission (SEC) was looking into its data collection practices. Multiple short-sellers targeted the company in the past over its practices, saying that it violated app store policies. NASDAQ: APP Key Data Points The stock was already looking expensive, trading at around 93 times its trailing earnings before this news came out. It has been a hot buy in recent years, but its high valuation could make it vulnerable to a steep sell-off, especially if the SEC confirms any of the concerns short-sellers had about the business. I would be hesitant to buy the stock based on just its valuation alone, and these latest developments only add to the risk of owning the stock right now. Rigetti Computing: up 3,220% Quantum computing stocks didn't take off right away amid the ChatGPT-fueled excitement. But they have been scorching of late. Shares of Rigetti Computing have soared more than 5,400% in just the past 12 months. The need for next-gen computing capabilities for AI led to investors rushing out to buy shares of quantum computing companies, in the anticipation that they may represent the next big growth opportunities in tech. And among the biggest winners has been Rigetti, with its market cap now sitting at more than $14 billion. In 2022, it finished the year with a valuation of just under $90 million. But a big problem is that the hype has outpaced the company's actual growth and its financials. It is still in its early growth stages, and over the past four quarters, its revenue has totaled just $7.9 million, while it has accumulated losses of around $165 million. NASDAQ: RGTI Key Data Points Rigetti is the riskiest stock on this list because it could take years before quantum computers truly become prevalent. In the meantime, investors are already paying for this stock as if it's a sure thing and that it will be a big player in the space -- and that's a risky proposition. As a result, this is another stock that may be too hot to buy right now. Palantir Technologies: up 2,000% Data analytics company Palantir Technologies was quick to enhance its platform with AI, and it ran hundreds of so-called "boot camps" with customers to show them how it could transform their businesses. It won many of them over, and Palantir's financials have come a long way in a few years. In the past 12 months, revenue has totaled $3.4 billion, which is 81% more than the $1.9 billion it generated in 2022. That was also the last year the company reported a loss ($373.7 million). Over the last four quarters, net income has totaled $763.3 million. The business experienced strong growth in both commercial and government segments. And with CEO Alex Karp routinely hyping the company's huge growth opportunities, investors have continually been buying up the stock. NASDAQ: PLTR Key Data Points But like the other stocks listed here, I would be wary of investing in Palantir today. AI hype has driven its valuation to a staggering $435 billion, which is outlandish since it puts the stock at a price-to-earnings multiple of more than 600. Even based on analyst estimates of future profits, it's trading at a forward earnings multiple of over 200. There's significant room for this stock to fall. If you've made a big profit on Palantir, you may want to consider cashing out. The market has seen a significant turnaround since the S&P 500's 19% decline in 2022, largely fueled by the excitement around Artificial Intelligence (AI) following ChatGPT's launch in November 2022. Nvidia's stock has soared 1,000% in this period, illustrating the substantial impact of AI on tech valuations. However, the article highlights three lesser-known AI-related stocks—AppLovin, Rigetti Computing, and Palantir Technologies—that have outperformed Nvidia, with gains of 4,270%, 3,220%, and 2,000% respectively. AppLovin, despite its 75% advertising revenue growth to $3.2 billion last year, faces significant regulatory scrutiny, with the SEC investigating its data collection practices. This, coupled with its 93x trailing earnings valuation, adds substantial risk to its investment profile. Rigetti Computing, a quantum computing firm, exhibits extreme speculative risk; its market capitalization has surged to over $14 billion from under $90 million in 2022, yet its revenue totals a mere $7.9 million with $165 million in accumulated losses, indicating hype has drastically outpaced fundamental growth. Palantir Technologies, while demonstrating strong financial growth with revenue increasing 81% to $3.4 billion and achieving $763.3 million in net income over the last four quarters, presents an "outlandish" valuation. Its $435 billion market capitalization translates to a trailing price-to-earnings multiple exceeding 600x, and a forward P/E over 200x, suggesting considerable downside potential if AI hype recedes. The article's cautious tone and negative per-ticker sentiments for these three companies reinforce these valuation concerns.
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