While much of the country is enjoying a hot summer, it’s getting colder in the technology sector, and traders are pulling out of overvalued tech stocks as they believe lower interest rates will make other sectors more attractive.
Does this mean tech stock trading is over? It doesn’t seem like it, but earnings season will be important as traders pick winners and losers. Tesla (NASDAQ:TSLA) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) dragged the overall tech sector down, even though Alphabet’s earnings report wasn’t bad at all.
That’s the nature of overly high expectations: Traders are willing to accept high valuations, but not until they no longer do. If you’re a long-term investor, this could be an opportunity. If you’re confident in the stock’s prospects, it’s best to weather the short-term concerns. But if you want to profit from a tech exit, here are some overvalued tech stocks to consider selling.
Palantir (PLTR)
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The next wave of the artificial intelligence (AI) revolution will come from software. But investors are waiting for AI’s iPhone moment: an app that shows why every business needs the services of a company like Palantir (NYSE:PLTR). And if you’re bullish on Palantir, this will be the moment investors realize Palantir isn’t just another company out there. Palantir is unique.
PLTR shares have a 60% upside through 2024. They also trade at about 180 times forward earnings. Wedbush’s Dan Ives has called the company the Lionel Messi of AI. Other analysts believe the stock is priced for unattainable perfection.
Retail investors continue to lead Palantir’s price movement, as institutions largely overlooked the stock when it was trading below $10 and again when it was trading below $20.
Are some of the analysts’ harsh comments down to sour grapes? Probably so, but it’s good to know things can be volatile for PLTR stock. Palantir faces the privilege of expectations and the burden that some of those expectations may be unrealistic in the near term.
Advanced Micro Devices (AMD)
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The chip industry is volatile, to say the least. Even market darling NVIDIA (NASDAQ:NVDA) is down about 15% from its June closing price of $135.39 (though it’s still up 147% for the year). It’s a matter of supply and demand. And Advanced Micro Devices (NYSE:AMD) is reaping the rewards.
But that hasn’t been enough to excite investors. AMD shares are up just 1.6% in 2024 and are down 6.5% in the 30 days ending July 24, 2024. What on earth is going on? This remains an NVIDIA story. As Louis Navalier pointed out, Advanced Micro Devices is in the early stages of its generative AI journey. The recent acquisition of Silo AI will help.
As we mentioned at the beginning, investors need to separate AMD stock’s volatile and potentially bearish short-term performance from its long-term outlook. The AI revolution is still in its early stages, and companies are looking for alternatives to NVIDIA. AMD is one of those competitors, but at 59 times forward earnings, it’s no wonder it’s considered one of the more overvalued tech stocks.
Adobe (ADBE)
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Adobe (NASDAQ:ADBE) is falling 10% in 2024, contrary to analysts’ expectations for the first two quarters.
The concern for investors is the unknown of how generative AI will impact the company’s business. After all, Adobe has relied on being the go-to source for content creation software. But even as Adobe integrates AI into its content creation tools, it’s too early to tell whether it will be enough to keep competitors at bay.
Institutional investors may be feeling the same way. Institutional buying has been calming down. After two quarters in which buyers outnumbered sellers by more than double, buying and selling have been roughly equal this quarter, and at a much slower pace. And before you write this off as a “sell in May” phenomenon, close to $250 billion flowed into ADBE shares last year.
Notably, Adobe’s shares fell to the same levels they did in March, which could suggest the company’s shares will remain range-bound for the foreseeable future.
As of the publication date of this article, Chris Markoch held a long position in PLTR. Opinions expressed in this article are those of the author and follow InvestorPlace.com’s publishing guidelines.
On the date of publication, the editor in charge did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Mulcock is a freelance financial copywriter who has been covering the markets for over five years and has been writing for InvestorPlace since 2019.
