3 Tech Stocks to Sell in June Before They Crash & Burn
The technology sector is driving the stock market higher in 2024. Stocks like Nvidia (NASDAQ:NVDA) and Microstrategy (NASDAQ:MSTR) are helping the sector to outpace the gains of the market as a whole by better than two-to-one. Yet as the market indices continue to notch new all-time highs, some market darlings don’t deserve the support they’ve received. Others tech stocks to sell don’t have what it takes to go the distance.
In any case, investors should use the opportunity to take whatever profits they can salvage and head for the exits. The three companies below are tech stocks to sell because they’ve run the course. Booting their shares from your portfolio will save you a lot of unnecessary pain later on.
Carvana (CVNA)
Online used car dealer Carvana (NASDAQ:CVNA) surprised everyone with a miraculous recovery. Many expected it to file for bankruptcy but instead it did just the opposite. The stock has rallied 2,200% over the last 18 months. It’s doubled so far this year.
Carvana surprised the market with a record first-quarter profit of $49 million. This was a major reversal from the year-ago loss of $286 million. However, the profit was due to a one-off gain of $75 million related to adjustments to the fair value of warrants to acquire artificial intelligence (AI)-driven auto insurer Root (NASDAQ:ROOT). Without the adjustment, Carvana would have reported losses again, albeit significantly narrower ones than last year.
Carvana also restructured its debt by about $1.2 billion. But it still has a significant burden of $5.5 billion. Moreover, the restructuring included exorbitant payment-in-kind interest rates of 9% to 12%. Essentially Carvana is racing against the clock to pay down most of its debt load before its loan repayments kick in.
The online used car dealer is not a bad company per se. But its stock doesn’t deserve the valuation assigned. Trading at 44 times those ephemeral earnings shows just how much the meme stock trade helped bloat the stock. Carvana is one of the tech stocks to sell.
Reddit (RDDT)
Social media site Reddit (NYSE:RDDT) hasn’t enjoyed the kind of run up as Carvana but its stock stands 20% above the price it opened at when it became a publicly traded company in March. Yet it also lost all the gains it made after announcing a partnership with ChatGPT owner OpenAI. Investors should cash out and enjoy their gains.
Reddit has to continuously spend a lot of money to attract users to the site. First-quarter marketing expenses of $60 million represents nearly a quarter of the revenue it generates. While it did see a 37% increase in daily active uniques (DAUq) to a record 87.2 million, some of that is likely related to its initial public offering. Moreover, most users don’t log in. That means they can’t create or comment on posts. Since Reddit’s growth is dependent upon engagement, it has a problem when more than half its users refuse to engage.
Investors should sell this tech stock and wait for at least the second quarter report when most of the hoopla around its IPO faded. We’ll begin to see then what kind of trajectory Reddit stock is on.
C3.ai (AI)
For a company all-in on AI, C3.ai (NYSE:AI) sure is missing the boat. The stock is down over 5% year-to-date and 27% over the past year. How does an AI stock lose when even companies with the most tangential relationship to the technology win?
C3.ai is an enterprise AI platform. For the full fiscal year it reported $310 million in revenue, a 16% increase year-over-year. Yet its losses widened again to $280 million from $268 million last year. Although it has promised profitability sometime late next year, it expects adjusted operating losses of $95 million to $125 million. That’s a wider range than it gave last quarter when C3.ai guided toward adjusting losses of $115 million to $123 million.
Moreover, C3.ai reported closing 191 agreements with customers, up 52% from last year. However, almost two-thirds or 123 of which were pilots. Those are essentially try-before-you-buy freebies where companies get to decide whether the software is a good fit for them. The rate of growth in new contract wins is slowing appreciably.
With hopes for profitability pushed well into the future and growth in new customers who stay sluggish, C3.ai is a tech stock to sell today.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
