The recent rally in the stock market has pleased investors with outstanding returns. With the earnings season going on in full swing, investors have high expectations from companies, especially the top tech companies. Driven by the AI craze, we have seen several companies report better-than-expected numbers. However, one should not judge all companies based on this. If you do not know when to exit, you could end up with substantial losses on your portfolio.
Tech stocks have enjoyed solid returns since the beginning of 2023, but there are a few companies that have seen a drop in revenue and earnings. This is not something any investor will be happy to see. A lot is unclear about the future of the economy right now, and dropping some stocks from the portfolio will help reduce your losses. With that in mind, let’s take a look at the tech stocks to sell now.
C3.ai (AI)
C3.ai (NYSE:AI) is an enterprise AI software company and develops machine learning algorithms. There is a lot of discussion on whether this company has the potential to achieve long-term growth. It is currently serving some of the top government, industrial, and energy clients. AI stock is trading at $39 today and is up 259% year to date. However, it is still trading lower than the 52-week high of $48.
I think the stock is at a good place right now, and you can make money off it. One reason to sell the stock is that more than 30% of its revenue comes from the joint venture with Baker Hughes, an energy giant, and this contract is set to expire in 2025. Another reason to avoid this stock is that the company has switched the fees from subscription-based service to usage-based fees, and I think that it could reduce the near-term revenue. It could also impact the company’s financials.
The company also faces massive competition from the top cloud infrastructure platforms which offer similar services. The competition could lead to a long-term drop in revenue until C3.ai can prove its worth. It saw a small revenue growth (6%) in 2023 but the management still expects 10% to 20% growth in 2024. Another thing to keep in mind is that the company is unprofitable, and it is expected to remain the same in the coming few years. Investors are paying a premium for this stock and there are several risks associated with it. Yes, there is a gold rush for AI solutions, and as a result, C3.ai is on a rally. However, I do not think it will be able to survive amidst the competition and this could lead to a slowdown in growth.
Robinhood (HOOD)
The pandemic gave a huge boost to Robinhood (NASDAQ:HOOD), and the company saw millions of new investors on the platform. However, once the impact of the pandemic faded, so did Robinhood’s businesses. HOOD stock is trading at $12.73 today and is up 57% year to date. It remains much lower than its all-time high of $55, and is one of the high-risk tech stocks. The online brokerage platform has seen a significant decline in trading activity as well as monthly active users. As a result, the revenue growth has slowed and the company has been posting losses.
It will take a lot more for Robinhood to survive in the competitive industry and it doesn’t seem to have any product or service that can set it apart from the crowd. The company reported a net loss of $511 million in the recent quarter due to a rise in operating expenses. Investors need to remember that the company was a thriving business only during the pandemic and it hasn’t improved its offerings since then. Furthermore, it has had to end support for cryptocurrencies recently due to the multiple lawsuits against crypto exchanges. This is also one reason investors have started to move to other platforms that support cryptocurrencies.
The losses could decline, but we shouldn’t expect significant growth in the coming quarters. It is still an unprofitable business and investing in HOOD stock has more risks than growth potential. The stock is trading close to its 52-week high and if you hold the stock, now is a good time to get rid of it. The company is set to release the second quarter results this week and it means one more quarter of losses could take the stock further down. It is one of the tech stocks to avoid.
Snap (SNAP)
A popular social media stock, Snap (NYSE:SNAP) is on a decline. The company has seen a drop in revenue as advertisers have started to pivot towards other platforms. It has also not been able to find a successful way to bring in new revenue. Like several other social media platforms, the company relies on advertising dollars for revenue. With the budgets dropping down, Snap hasn’t been able to succeed in generating the anticipated revenue. It has also tried working on hardware products but has failed miserably.
While its daily active users are growing, its sales and revenue have seen a drop. There was a 7% drop in sales, and the company is constantly facing threats from diversified rivals in a highly competitive environment. It saw a 4% drop in revenue in the recent quarter and the third quarter forecast wasn’t impressive either. This is a tech stock sell alert.
It has a challenge to compete with TikTok for users and advertisers. An advertiser will only go to the platform that has a steady rise in users and this means Snap has a lot to worry about presently. SNAP stock is trading at $10.68 today and is down 7% in the past six months. The stock hasn’t been able to hit $14 since the beginning of January. SNAP is one of the top tech stocks to sell now. There was a time when the stock was trading as high as $83 but it has seen a constant drop since the end of December 2021.
On the date of publication, Vandita Jadeja 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.
