3 High-Flying Tech Stocks Facing Valuation Concerns
It’s been a hot summer for much of the country, but it’s getting frosty if you’re in the technology sector. Traders are starting to rotate out of overvalued tech stocks as they believe that lower interest rates may make some other sectors more attractive.
Does that mean the tech trade is over? It wouldn’t seem so, but earnings season will be critical as traders pick winners and losers. Tesla (NASDAQ:TSLA) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) took down the entire tech sector even though, in the case of Alphabet, the report wasn’t bad at all.
Such is the nature of sky-high expectations. Traders will accept a high valuation until they don’t. If you’re a long-term investor, that can present opportunities. If you believe in the stock’s prospects, it’s usually best just to ride out any short-term concerns. But if you’re looking to profit from the rotation out of tech, here may be some overvalued tech stocks to consider selling.
Palantir (PLTR)
The next wave of the artificial intelligence (AI) revolution will come from software. However, investors are waiting for the iPhone moment in AI. That is the application that shows every company why they need the services of a company like Palantir (NYSE:PLTR). And if you’re bullish on Palantir, that will be the moment investors understand that Palantir isn’t one of many. It is unique unto itself.
PLTR stock is up 60% in 2024. Also, it trades at around 180x forward earnings. Dan Ives of Wedbush has called the company the Lionel Messi of AI. Other analysts believe the stock is priced for perfection that is not attainable.
The price action around Palantir continues to be led by retail investors. Institutional investors largely missed the stock when it was trading below $10 and again when it was trading below $20.
Could some of the sour analyst calls be sour grapes? Perhaps, but it’s just good to know that things could get choppy with PLTR stock. Palantir faces the privilege of expectations, and the burden that some of those expectations may be unrealistic in the short term.
Advanced Micro Devices (AMD)
The chip sector has been volatile to say the least. Even a market darling like NVIDIA (NASDAQ:NVDA) is down approximately 15% from its closing price of $135.39 in June (it’s still up 147% for the year). The issue comes down to supply and demand. And Advanced Micro Devices (NYSE:AMD) is becoming the beneficiary.
But that hasn’t been enough to get investors charged up. AMD stock is up just 1.6% in 2024, and it’s down 6.5% in the 30 days ending July 24, 2024. What gives? This remains a NVIDIA story. As Louis Navallier noted, Advanced Micro Devices is still in the early stages of its generative AI journey. Its recent acquisition of Silo AI will help. ,
As I mentioned in the introduction, investors need to decouple what could be volatile, bearish short-term performance for AMD stock from the long-term story. The AI revolution is still in the early stages and companies are looking for alternatives to NVIDIA. AMD is one of those competitors, but at 59x forward earnings, it’s rightly viewed as one of the overvalued tech stocks.
Adobe (ADBE)
Adobe (NASDAQ:ADBE) is down 10% in 2024, despite analysts’ estimates in the first two quarters.
The concern for investors is the unknown effect that generative AI will have on the company’s business. After all, the Adobe relied on being the go-to source in content creation software. But even though Adobe has integrated AI into its content creation tools, it’s too early to tell if that will be enough to keep competitors away.
That may be how institutions feel. Institutional buying is quieting down. After two quarters where buyers doubled up sellers, the buying and selling is virtually even this quarter and pretty slow at that. And before you think that’s a “sell in May” phenomenon, last year saw nearly $250 billion flow into ADBE stock.
Notably, Adobe stock sold off at the same level it did in March. That could suggest that the stock will be range-bound for the near future.
On the date of publication, Chris Markoch had a LONG position in PLTR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
