Shares of Nvidia (NASDAQ:NVDA), Tesla (NASDAQ:TSLA), and Palantir (NASDAQ:PLTR) have gapped up on Wednesday as the inflation read came in cooler than expected. This is the first positive news that came in after many weeks, and while many are buying the dip in celebration, you may want to look into things further.
The broader stock market is currently grappling with significant challenges, and one good inflation report is unfortunately not enough to overcome all the bad news. In fact, the cooler inflation report could instead backfire and be seen as a bearish thing.
The U.S. economy is showing signs of deceleration, and there are rising fears of a recession. The Atlanta Fed expects a 2.8% GDP contraction in Q1. If you were asked to list out some hallmarks of a recession, deflation would most likely be near the top. Thus, the cooler inflation report can be seen as a sign that a recession is coming.
Rising consumer debt and declining job openings suggest weakening economic fundamentals. Both trends would have to reverse for this inflation report to be truly bullish. Otherwise, it does not suggest that the economy is normalizing.
The tariff uncertainty is only getting worse by the day. Trump said he would double the tariffs on Canadian steel and aluminum but then reversed course within a day. The Ontario Premier also canceled plans for electricity surcharges, but you now have news coming out of plans of $20.7 billion in retaliatory tariffs for the previous 25% tariffs. As such, you shouldn’t have much hope of this “recovery” holding up.
The bad still outweighs the good. As such, buying the dip solely due to the cooler inflation report isn’t very wise.
Nvidia still faces significant risks from tariffs that could erode its profitability, alongside mixed analyst predictions for its stock price in March 2025. You’re paying historically low earnings multiple for NVDA right now, but if earnings take a hit, the stock market will follow it down.
Nvidia also faces export restrictions on AI chips to China, which contributed 13% of its fiscal 2025 revenue. Not only that, but its sales to Singapore and Vietnam are at risk if the Trump administration gets even more aggressive.
Nvidia is in a much better position than most other AI stocks, but it still needs the broader market to cooperate before it can recover. As such, it’s a better idea to hold off on buying the NVDA dip.
The outlook is even worse for Tesla. Tesla's stock has been battered by weak global sales and competition in the EV market. Although analysts remain cautiously optimistic about its long-term prospects, short-term recovery appears unlikely without a significant improvement in fundamentals.
Weak sales in China, Europe, Australia, New Zealand and even in the U.S. are good signals that TSLA’s financials are unlikely to reverse course soon. Paying 83 times earnings for this stock leaves significant downside risk.
On top of that, Tesla will face significant margin compression if EV subsidies are rolled back.
It’s still a sell at current valuations.
Any recovery in PLTR is unlikely to stick around for long. The stock still trades at 140 times forward earnings, and even if you look at the highest 2030 EPS estimate, you’re still paying about 41 times earnings for this stock.
The bullish argument for PLTR involves a broader AI rally. The opposite is the case right now as Wall Street starts putting more weight on valuation. PLTR stock doesn’t shine the brightest when it comes to that, so it’s a fragile bet unless you believe that the AI rally will return in full force.
In a recession, PLTR can fall 50%-plus from here. The consensus price target of $75.25 still implies 8.9% downside risk.
