Palantir Technologies (PLTR 23.99%) and Tesla (TSLA 2.22%) were two of the most popular stocks among retail investors last year as measured by net inflows. But most Wall Street analysts expect both stocks to decline this year.

• Among the 23 analysts who follow Palantir, the median target price of $39 per share implies 62% downside from the current price of $102. Brent Thill at Jefferies is particularly bearish. He has a sell rating, and his target price of $28 implies 73% downside.
• Among the 52 analysts who follow Tesla, the median target price of $278 implies 29% downside from the current share price of $390. Ryan Brinkman at JPMorgan Chase is particularly bearish. He has a sell rating, and his target price of $135 implies 65% downside.

Read on to learn more about Palantir and Tesla.

Palantir: 73% implied downside

Palantir is a data analytics company recognized by Forrester Research as the technology leader in machine learning and artificial intelligence (AI) software.

Palantir reported exceptional fourth-quarter results, beating estimates on the top and bottom lines. Sales increased 36% to $828 million, the sixth consecutive sequential acceleration, and adjusted net income surged 75% to $0.14 per diluted share.

CEO Alex Karp said, "Our business results continue to astound, demonstrating our deepening position at the center of the AI revolution." But most Wall Street analysts remain skeptical. The consensus estimate calls for adjusted earnings to increase 17% in the next four quarters, which makes the current valuation of 248 times earnings look absurd. Brent Thill at Jefferies recently wrote that Palantir "is the most expensive software name."

However, the company has also converted some pessimists into believers. Morningstar recently raised its target price to $90, up from $21 in November 2024. Its analyst Mike Giarelli wrote, "Palantir's outstanding fourth-quarter results, rapid growth amid the artificial intelligence arms race, and strategic positioning in the AI-value chain further solidify our base-case expectations that this company can be the next software juggernaut."

The International Data Corporation, a market researcher, estimates AI platform spending will increase by 41% annually through 2028. That means Palantir has compelling growth prospects.

But investors should be cautious with the stock at its current valuation. While I believe Palantir will be worth more in the future, perhaps much more, any bad news could trigger a sharp decline. Having said that, I doubt shares will fall 73%.

Current shareholders bothered by the possibility of a major correction should trim their positions, especially if those positions account for a large percentage of their portfolios.

Alternatively, investors comfortable with volatility should lean into the stock on dips. For instance, consider buying a small position if the share price falls 10%, and buying a little more if it drops another 10%.

Tesla: 65% implied downside

Tesla reported dismal results in the fourth quarter, missing estimates on the top and bottom lines. Revenue increased only 2% to $26 billion as the company lost market share in electric vehicles (EVs), and operating margin contracted 2 percentage points as its average selling price declined due to price cuts. Adjusted earnings increased a little faster, rising 3% to $0.73 per diluted share, but only because Bitcoin added $600 million to net income.

However, the long-term bull case remains intact. Tesla is well positioned to monetize autonomous driving technology after spending billions of dollars over the last decade to develop full self-driving (FSD) software and hardware. The company has more driving data than peers like Alphabet's Waymo because its fleet is several times larger and constantly collecting information. That gives the company an advantage in training artificial intelligence models.

With that in mind, CEO Elon Musk is confident it will introduce robotaxi services (autonomous ride-sharing) in Austin, Texas, and several other U.S. cities at some point in 2025. That could eventually be a very large revenue stream.

ARK Invest thinks robotaxis will be a $10 trillion market by the early 2030s. So, Musk believes that 2025, when viewed in hindsight, may be "the most important year in Tesla's history."

He also sees a $10 trillion market opportunity in humanoid robots, and he thinks Tesla's Optimus is the "most advanced humanoid robot by a long shot." He says Optimus will be doing useful work in the company's factories before the end of 2025,, and it may begin selling the robot to customers in late 2026. And Musk believes it will eventually be Tesla's most valuable product.

Wall Street expects adjusted earnings to increase 19% in the next four quarters. That makes the current valuation of 160 times earnings look outrageously expensive. The stock may decline sharply if Tesla hits any speed bumps, though I doubt shares will fall 65%.

More importantly, I think Tesla (like Palantir) will be worth more in the future. So, patient investors comfortable with volatility should look for dip-buying opportunities.