August is a tough month for tech investors, particularly as many expected July’s climbing prices to continue. But the past few months may have been a bull trap, as stocks are falling back in a massive correction, shaking investors.
The S&P 500 already fell 5% this month, with the prospect of more pain to come.
The Federal Reserve says rate hikes are still on the table, putting substantial downward pressure on stocks.
No companies suffer more from elevated rates than tech stocks relying on cheap debt. Besides tech-wide issues posed by rate hikes, these three stocks have unique issues of their own – meaning investors should sell these stocks as soon as possible.
Coinbase (COIN)
Coinbase (NASDAQ:COIN) faced many problems since it broke into the public sphere, mainly because of the unresolved series of SEC charges alleging the company acts as an unregistered exchange, broker and clearing agency.
No matter company-specific problems, Coinbase’s primary problem is how closely aligned its stock is with overall crypto performance.
As the field’s foundations become shakier, Coinbase won’t fare well. Just this week, investigators found more than 500 scam tokens proliferating on the platform, putting more than $2 million into scammers’ hands before catching the problem.
At the same time, Coinbase itself seems to think there’s trouble ahead for the crypto market. Analysts uncovered Coinbase’s multi-million dollar bet against crypto from recent SEC filings.
The company holds almost $100 million in short positions against the broad crypto market. While one would expect hedging strategies as part of prudent financial management, this seems not to be the case.
Coinbase, in the same report, revealed an additional $215 million in short hedging positions. This implies the other third of its short positions are speculative, betting against crypto.
Block Inc (SQ)
Block Inc (NYSE:SQ) is currently priced close to an all-time low, but there’s further pain for this payment processing tech stock.
Much like Coinbase, Block’s financial health is strong aligned with crypto markets. At the beginning of the month, the company’s quarterly financial report showed that nearly half of Block’s revenue came from Bitcoin (BTC-USD) sales.
While this indicates trouble for Block if crypto crashes, other warning signs arise from the report.
Block already faces stiff competition, not the least of which is from the Federal Reserve’s FedNow initiative, a lightning-fast payment processor which will cut into Block’s market share. But other fintech giants are getting into the crypto game in a way that may undercut Square’s popularity.
Just a few weeks ago, PayPal (NASDAQ:PYPL) announced their own stablecoin launch, dubbed PayPal USD (PY-USD). PayPal already enjoys a dominant position in payment processing markets compared to Block and, with its newest venture, threatens to squeeze Block further.
These factors pose a long-term threat to Block overall, making the stock a definite sell.
Nvidia (NVDA)
Nvidia (NASDAQ:NVDA) has been on a run this year, mainly driven by AI exuberance. But the wheels may fall off the wagon sooner than expected, bringing this tech stock back to Earth.
The company reports earnings next week, and most analysts expect a blowout. But this inflated expectation might prove problematic. If Nvidia doesn’t meet analysts’ wildest expectations, expect the stock to suffer quickly.
The stock already trades at a whopping 227 price-to-earnings ratio, indicating significant overvaluation. One tiny misstep could bring the stock tumbling down post-earnings, no matter its long-term prospects.
Ultimately, Nvidia is likely at the upper end of practical pricing – meaning there’s nowhere to go but down.
Nvidia doubtlessly has great long-term potential, particularly as AI initiatives depend primarily on its dominant hardware position. But at this price, investors should take profit while they can and sell this tech stock.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
