However, while early investors made millions from both companies, it might be wise to take profits before 2025. Let's dig deeper to find out why.

Palantir's third-quarter earnings grew 30% year over year to $726 million, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 39% to $283.6 million. On the surface, these aren't bad numbers. But they look absurd compared to the company's forward price-to-earnings (P/E) multiple of 172.

With shares up 75% so far this year, Arm Holdings is another tech stock that has seen AI hype overshadow its fundamentals. While the company plays an important role in the global hardware ecosystem through its industry-leading chip architecture, it might not benefit as much from AI-related demand as some market participants seem to think.

Arm designs central processing units (CPUs), often known as the brains behind a computer. Its architecture tends to be energy efficient, making it popular in devices ranging from laptops to smartphones (where it boasts a 99% market share, according to the company's website). But Arm's popularity is a double-edged sword because it makes it difficult for new opportunities like AI chips to generate enough growth to move the needle.

Arm's fiscal second-quarter revenue only increased by 5% year over year to $844 million, driven by smartphone demand (which makes up 35% of its royalty revenue). The smartphone industry is mature (likely peaking in 2016), so investors should expect this business to decline over the long term, potentially draining Arm's growth potential.

While it is impossible to time the stock market, the current AI hype cycle probably won't last forever. High-profile AI start-ups like ChatGPT maker OpenAI are still burning through billions of dollars. According to CNBC, many in Silicon Valley are increasingly concerned that the technology's pace of advancement is already slowing down.

The year 2025 could be one of reckoning for the AI industry as the market starts prioritizing fundamentals over hype. Investors can position themselves to weather the potential storm by avoiding companies like Palantir and Arm Holdings, which may struggle to justify their sky-high valuations.