The good news is that it also presents opportunities for AI value. Here are two beaten-down AI stocks<\/a> that Wall Street expects to surge at least 40% over the next year (as of July 1). <\/p>\n After once seeming invincible, the AI decision-making company Palantir Technologies\u00a0(NASDAQ: PLTR) is down over 24%. <\/p>\n Palantir has struggled due to its monster valuation, and as investors have rotated into AI hardware names, specifically those addressing AI supply chain bottlenecks like memory and other components that need to scale, along with clusters of graphics processing units (GPUs). There have also been concerns about competitors, and Palantir has lost some contracts in Europe as foreign players have opted for domestic providers. <\/p>\n When companies have sky-high valuations, roadblocks and hiccups can hit much harder because there’s so little room for error to begin with. However, Wall Street analysts clearly believe the thesis is still intact. <\/p>\n Of the 20 analysts who have issued a research report on Palantir over the past three months, 13 have a buy rating on the stock, five say hold, and two have a sell rating. The average price target of $181 implies nearly 43% upside from current levels, according to TipRanks. <\/p>\n Recently, Wedbush analyst Dan Ives reiterated his $230 price target for the stock, the highest on the Street. Ives sees the agentic AI<\/a> trend unfolding in the company’s favor because Palantir’s platform can help agents complete real workflows with strong governance in place. <\/p>\n Ives pointed to Palantir’s recent deal with Zeta Global, in which Palantir will partner with the company to build an AI infrastructure layer to support its agentic marketing efforts. He sees Palantir resonating well among enterprises and is not worried about the company relying too much on government contracts. <\/p>\n Story Continues <\/p>\n Palantir is an AI company that I view as having tremendous potential, but it’s still difficult to buy given its valuation. Even though the stock has come down in price, the company still trades at nearly 87 times forward earnings and 40 times forward sales. <\/p>\n It’s too difficult to assess the strength of the company’s moat against potential competitors at this valuation. <\/p>\n 2. Microsoft: 45% upside <\/p>\n Microsoft (NASDAQ: MSFT) is another company that has struggled to find its footing this year, down roughly 18%. <\/p>\n After seeing its stock fall more in the first three months of the year than in any quarter since 2008, investors still don’t seem convinced that Microsoft is over the hump yet. <\/p>\n The hyperscaler’s digital AI assistant Copilot has struggled to gain traction. Investors are also worried that even the company’s Microsoft 365 suite of office tools, which has long dominated the business enterprise space, could be vulnerable to AI, similar to other software companies. <\/p>\n Still, Wall Street thinks the concerns are overblown. Of the 36 analysts who have issued a research report on Microsoft over the past three months, 35 have a buy rating on the stock, and one has a hold rating. The average price target of $562 implies nearly 45% upside, according to TipRanks. <\/p>\n I prefer buying the dip on Microsoft over Palantir for a few reasons. For one, Microsoft will thrive even if AI doesn’t work out as planned. The company operates many diversified tech businesses that remain attractive. <\/p>\n While I share concerns about Copilot, Microsoft can still benefit from the AI trend through its cloud business, which will prove vital for companies looking to deploy AI solutions but don’t want to set up their own infrastructure. Microsoft Azure revenue rose 40% year over year in its most recent quarter. <\/p>\n I also believe the company has sufficient resources to provide the right AI tools to continue making 365 attractive to enterprises and retain market share. <\/p>\n Should you buy stock in Palantir Technologies right now? <\/p>\n Before you buy stock in\u00a0Palantir Technologies, consider this: <\/p>\n The Motley Fool\u00a0Stock Advisor\u00a0analyst team just identified what they believe are the\u00a010 best stocks<\/a>\u00a0for investors to buy now\u2026 and\u00a0Palantir Technologies\u00a0wasn’t one of them.\u00a0The 10 stocks that made the cut are built for long-term growth and could produce monster returns in the coming years. <\/p>\n Consider when\u00a0Netflix\u00a0made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation,\u00a0you’d have $409,970!*\u00a0Or\u00a0when\u00a0Nvidia\u00a0made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation,\u00a0you’d have $1,200,223!* <\/p>\n That performance is why people listen. With a track record of\u00a0beating the S&P 500 by 4x,\u00a0Stock Advisor\u00a0offers a distinct advantage. Don’t miss the latest top 10 list, available with\u00a0Stock Advisor, and join an investing community built for the long haul. <\/p>\n See the 10 stocks \u00bb<\/a> <\/p>\n *Stock Advisor returns as of July 7, 2026. <\/p>\n Bram Berkowitz<\/a> has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Palantir Technologies. The Motley Fool has a disclosure policy<\/a>. <\/p>\n<\/a> Image source: Getty Images. 1. Palantir Technologies: 43% average upside <\/p>\n