Some stocks enjoyed incredible runs during this year’s first quarter. Fueled by hype and speculation and the fear of missing out, a handful of stocks saw their share price more than double, even triple, between January and the end of March. The incredible gains made some investors very wealthy in a short period of time. But can the good times last? Not likely given the markets sluggishness to start the year’s second quarter and the fading fortunes of many high-flying stocks.
Short sellers have moved in and placed big bets that the stocks that saw the biggest gains in Q1 will crash and burn in the weeks and months ahead. This shouldn’t be surprising to anyone, as no stock can continue to double or triple forever. A pullback is almost certain to occur after a red hot rally. With markets seemingly on edge regarding inflation and the timing of interest rate cuts, it might be time for people who own the following stocks to take profits. Here are three overhyped stocks to sell in April before they crash and burn.
MicroStrategy (MSTR)
The shine already seems to be coming off the stock of MicroStrategy (NASDAQ:MSTR). Since March 27, the software company’s stock has declined 15%. The drop has coincided with a decline in the price of Bitcoin (BTC-USD), which MicroStrategy has hitched its wagon. Under the direction of CEO Michael Saylor, MicroStrategy, technically a business intelligence software company, has purchased 205,000 Bitcoin worth $15 billion.
Saylor publicly stated he wants to accumulate as much BTC as possible ahead of the April 20 halving event. During this event, Bitcoin reduces the amount issued and the rewards offered to crypto miners by 50%. MSTR stock was riding high as Bitcoin’s price hit an all-time high of just under $74,000 on March 14 of this year. Since then, the share price has come under pressure now that BTC is trading at $66,500 per token. MicroStrategy’s stock is still up 142% on the year, but it has begun to decline.
Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) is another overhyped stock that has started to trend lower after a monster rally. SMCI stock is up 250% so far in 2024 and has gained 784% in the last 12 months. However, the rally has begun to fade, with the company’s share price down 7% since the beginning of March. Super Micro Computer had been riding high as demand for its servers that run artificial intelligence (AI) applications soared. But now the hype and expectations appear to be cooling off.
SMCI stock seemed to peak as the company’s shares were added to the benchmark S&P 500 index on March 18. The company replaced home appliance manufacturer Whirlpool (NYSE:WHR) in the index. However, since joining the S&P 500, SMCI stock has declined. The blistering rally over the last year took Super Micro Computer’s market capitalization from $4.50 billion at the end of 2022 to nearly $60 billion today. A pullback was likely inevitable after such a big run in the stock.
Investors should be aware that market data indicates Super Micro Computer is among the top five most shorted U.S. stocks. That means professional traders are betting on the share price continuing to decline in the near-term.
Arm Holdings (ARM)
Microchip and semiconductor stock Arm Holdings (NASDAQ:ARM) has seen its share price more than double since its initial public offering last September. This year, ARM stock has gained 82%. However, the British company might crash and burn in coming months for a variety of reasons. Already, the share price has pulled back 10% in the last month with more declines likely as AI hype moderates and the post-IPO lock-up period expires, enabling shareholders to sell their holdings.
ARM stock really took off after the company announced better-than-expected earnings in early February and management talked up the role that their microchips and semiconductors play in AI. But since the earnings print, the six-month lock-up period that prevents company insiders and owners from selling their stock expired on March 12, paving the way for a potentially big selloff. Complicating matters is the fact that Arm’s biggest shareholder is Japan’s SoftBank Group, which owns 90% of the stock.
SoftBank hasn’t started selling ARM stock in big quantities yet. But if it happens, the company’s share price could definitely crash and burn.
On the date of publication, Joel Baglole 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.
