Most major tech firms reporting in 2024 have registered upbeat results compared to the prior quarter, recording a staggering 86% EPS beat versus estimates. With quarterly earnings of 2023 nearly out of the way, it might be a good time to consider which overextended stocks to sell.
The S&P 500 has soared around 20% in just the three months leading to early February, with notable tech stocks exceeding these gains. Tech is the most significant contributor to S&P 500 earnings, making up around a third of the index’s value. Above the 5,000 mark, the risk of a correction creates an opportunity for some stocks to sell off around 10% or more.
Moreover, earnings for the coming quarter are forecast to decline quarter-over-quarter. This is partly due to typical seasonal factors and other emerging issues. For example, some companies have announced layoffs recently. Redundancies are generally only pursued by businesses facing challenges meeting targets.
Tech Stocks Expected to Fall: 10% Alphabet (GOOG, GOOGL)
Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) confirmed trouble in tech. Both saw their share price fall as investors interpreted them as stocks to sell. This indicates that performance across tech was mixed. Given the economic headwinds, Apple’s slower sales in China were not so concerning. However, Alphabet suffered from lower advertising revenue and job cuts in that division and hardware operations. The CEO warned staff in an internal memo of further impending layoffs, leading us to begin the following list of stocks to sell with Alphabet.
The conglomerate behind Google experienced a notable rise of 56% in its stock value in the year leading to its earnings announcement, hitting record highs. However, a significant drop ensued shortly after the release as it was interpreted as a stock to sell. Although there has been a partial recovery, the drop indicates the company’s susceptibility. The market is often quick to penalize tech companies when their performance doesn’t meet expectations, making it one of the stocks to sell on a further potential correction.
Regarding Google, the company encountered problems due to a slight underperformance in expected ad revenues. Predicted to hit $65.8 billion, revenues fell short slightly at $65.5 billion. Despite performing better in areas like cloud services and YouTube, this immaterial deficit drew little attention.
The anticipation for Google’s strategy to counter ChatGPT by unveiling its Gemini AI platform, previously named Bard, was high. Nevertheless, Gemini didn’t leave a significant mark, being briefly mentioned only once in their earnings announcement. The ongoing issues of artificial intelligence (AI) “hallucinations” hardly inspire any confidence, with Google being one of the stocks to sell as the potential of having topped out, for now, remains high.
Palantir (PLTR)
Palantir (NYSE:PLTR) has seen powerful upward momentum over the past few months, skyrocketing more than 220% thanks to AI demand. Last week alone, the stock recorded a 30% one-day gain post Q4 earnings release. The earnings and performance garnered attention, with CNBC “Mad Money” presenter Jim Cramer recommending a buy.
However, analyst views are more mixed. According to four consensus recommendations issued in February, analysts see PLTR as a stock to sell. Their average price target of $18.71 represents a big drop to $24.38 at the time of writing. While acknowledging solid recent financial performance, analysts generally consider that PLTR’s valuation may have run ahead of underlying company fundamentals.
Despite paying no dividend, the stock trades at a 23% premium to large-cap sector peers on a price-to-earnings (P/E) basis, making it a more promising stock to sell. Its forward P/E ratio of 270 significantly exceeds the United States tech sector average of 44.4 times earnings too. You can see why this made our list of tech stocks to sell.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) has seen remarkably swift growth in its share price recently, primarily driven by strong demand for its AI chips and its near dominance of the market segment. NVDA trades at a P/E ratio of 95.2, twice the sector P/E ratio, with its 14-day RSI at 82.4—well into ‘overbought’ territory. Both conditions make it one of the candidate stocks to sell. Of the “Magnificent 7,” Nvidia is the sole remaining company scheduled to report its Q4 results, due on February 21. This looming update could potentially end the stock’s historic winning streak.
Analysts’ views on Nvidia’s prospects are cautious, too. The average price target is $660 per share, implying a 10% correction from the current price of $721.33. Consensus forecasts point to an EPS of $4.53 on revenues of $20.2 billion. While it could exceed the $3.71 EPS and $18.1 billion revenues recorded in the prior quarter, some feel it may not adequately justify Nvidia’s valuation. Thus, it’s one of the stocks to sell to gain from a potential correction.
The market appears to be pricing in another substantial beat of expectations. However, only the forthcoming earnings announcement will reveal whether traders or analysts have most accurately anticipated Nvidia’s ongoing trajectory. Make sure you keep these tech stocks out of your portfolio.
On the date of publication, Stavros Tousios did not have (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.