AI Stocks Flash Red: Palantir, Oracle Valuations Stretched

As the AI trend continues to push the major indices higher, concerns about overextension amid record-high valuations should have some investors considering whether to lock in gains on high-flying stocks. This year, the two top-performing sectors—tech and communication services—have posted gains of roughly 17% and 21%, respectively. Unsurprisingly, both are heavily leveraged to AI and are home to five Magnificent Seven stocks.   

And while this isn’t an argument for liquidating your AI stocks, shining a light on some of the elevated price-to-earnings (P/E) ratios and questionable financials of these companies can help you decide if now is the appropriate time to scale out of the following stocks.

Palantir’s Concerning P/E Ratio Raises Red Flags

Palantir Technologies Today

PLTR

Palantir Technologies

$170.26 -0.95 (-0.55%)

As of 04:00 PM Eastern

52-Week Range

$35.71

▼

$190.00

P/E Ratio

778.23

Price Target

$138.28

While a forward P/E of about 200 for Palantir Technologies NASDAQ: PLTR isn’t as elevated as its trailing 12-month (TTM) P/E of 531, it’s worrisome.

When the market experienced a tech selloff at the beginning of August, Palantir lost 18% before the stock found its footing on Sept. 5. It’s since gained nearly 12% back. Still, those dramatic swings in price are eerily reminiscent of another AI darling: NVIDIA NASDAQ: NVDA. 

From the start of 2023, the chipmaker—whose market cap is now the largest of any publicly traded company—has gained nearly 1,120%. And while it has outperformed the market in 2025, its year-to-date (YTD) gain of nearly 29% feels pedestrian after gaining nearly 192% the year prior. 

Of course, Palantir isn’t NVIDIA. However, a close look at the latter’s historical P/E could provide clues about the former’s path forward. On April 2023, NVDA’s TTM P/E was 148. Today, the semi stock’s forward P/E is a more comforting 40.

As shares continued to rise, investors experienced some ups and downs along the way. There was a dip of 19% in late March 2024, followed by a 21% decline early that summer, and another 21% drop later in the season. The journey also included a significant 36% decrease from November to April of this year. Despite these fluctuations, many remained hopeful about the future. 

Palantir hasn’t had as many sharp pullbacks, but after posting its first full-year profit in 2023, things haven’t been easy. The stock lost nearly 17% from December 20, 2024 to January 10, 2025, almost 38% between Feb. 14 and its YTD low on April 4.

Palantir’s federal contracts will likely continue sending the stock up and to the right, but investors who don’t have the stomach for what’s likely to be a volatile path forward should consider locking in gains. The company’s debt load has been skyrocketing in recent years, with total liabilities going from $819 million in 2022 to $1.25 billion in 2024, a 52% increase.

Zooming in, PLTR’s cash flow—a trustworthy gauge of financial health—fell 105% from positive $1.33 billion in Q4 2024 to negative $64 million in Q2 2025. 

Those metrics are causing concern on Wall Street. Institutional ownership has slipped to 46%, while outflows of $29 billion over the past 12 months surpassed inflows of $13.6 billion.

Palantir’s average price target of $136.61 represents a potential downside of 20% from its current share price.

Oracle’s Runaway Debt Raises Investor Concerns

Oracle Today

$306.80 +4.66 (+1.54%)

As of 03:59 PM Eastern

52-Week Range

$118.86

▼

$345.72

Dividend Yield

0.65%

P/E Ratio

71.02

Price Target

$303.44

Oracle NYSE: ORCL may not grab headlines like Palantir. Still, its $820.38 billion market cap is more commanding and reflective of the tech company’s ability to leverage its cloud infrastructure and enterprise software to provide tailored AI services and hardware for large-scale AI applications. 

Like Palantir, the stock is experiencing a P/E correction, with its TTM multiple of 70.3 now improving to a forward P/E of 45.44. Earlier this month, the stock had an exciting run, soaring 47% from Sept. 4 to Sept. 10 before pulling back more than 11% over the next few days. Volatility is common with tech stocks—especially those heavily involved in AI. Still, there are some underlying concerns for ORCL shareholders worth keeping in mind. 

Earnings slowed almost 15% between the past two quarters, from $1.22 per share to $1.04 per share. While annual EPS increased from the prior year, there are other red flags. Substantial CapEx led to a sizable negative investing cash flow of—$8.7 billion in Q1 2026. 

Meanwhile, the company’s net change in cash and equivalents declined $341 million the same quarter as Oracle’s interest expense is sitting around $900 million per quarter.

Much of that has to do with total liabilities climbing from $109.3 billion in 2022 to $168.4 billion in 2025, a 54% increase.

Institutional ownership is down to 42%, with outflows surpassing inflows over the past 12 months. Analysts’ current price target only represents a potential upside of 1.6% from today’s share price. 

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