The stock market rally that has been ongoing for nearly a year suddenly looks fragile. Hotter-than-expected inflation reports and strong economic data have pushed out expectations for the timing of interest rate cuts by the U.S. Federal Reserve. Futures traders now expect the first rate cut in June rather than March, and many see only three or four rate cuts happening in 2024, down from as many as six that were expected at the start of the year. Fast-moving stocks are being hit by this change in plan as investors start to get wary of what’s to come.
At the same time, disappointing earnings reports from companies such as Tesla (NASDAQ:TSLA), coupled with weak forward guidance from many others, has investors feeling on edge and quick to sell their holdings. Consequently, the benchmark S&P 500 index has fallen from its record high above 5,000 and declined nearly 1.5% since Feb. 15. As the rally shifts into a lower gear, certain high-flying stocks that saw their share price double and even triple since spring 2023 are being particularly hard hit. Here are three companies that seem to have flown too close to the sun and may be about to get burned.
Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) is up 152% just six weeks into the year. In the last 12 months, SMCI stock has risen an astounding 719%, putting it at the top of the fast-moving stocks list. The rally has been nothing short of blistering. Now, however, it looks like Super Micro Computer’s stock has run too far, too fast and the share price is pulling back. Since peaking on Feb. 15, the company’s stock has plunged 30% and looks like it may go down further than that.
Although the pullback in SMCI stock is expected due to its rapid expansion, many analysts still believe that the rally and valuation are justified. In fact, fueled by its use of artificial intelligence (AI), some analysts see Super Micro Computer’s stock running higher in coming months. Rosenblatt Securities just raised its price target on SMCI stock to $1,300, the highest level on Wall Street and implied there could be a 60% upside from current levels. Other analysts remain bullish too, despite the current drop in the stock’s share price.
Arm Holdings (ARM)
Not far behind Super Micro Computer is British microchip designer Arm Holdings (NASDAQ:ARM). The company is up 81% so far in 2024 and has doubled since its initial public offering (IPO) last September. As far as fast-moving stocks go, Arm is seeing some tremendous growth. Almost all of the gain has come after Arm issued strong earnings at the start of February. ARM stock rose 99% in the five trading sessions after its financial results were made public. Clearly there was a little too much hype surrounding the stock though as it has pulled back about 7% since peaking on Feb. 15.
ARM stock initially tripled after the company’s latest print, placing its market capitalization at $153 billion, nearly as large as established rival Intel’s (NASDAQ:INTC) market cap. The frenzy in Arm’s stock was triggered by company executives saying they are seeing soaring demand for their microchips among AI companies, and that they are moving into new markets such as cloud computing and motor vehicles. Arm’s chips are currently found in nearly every smartphone and many personal computers (PCs).
Nvidia (NVDA)
A lot has happened with Nvidia (NASDAQ:NVDA) since the start of the year. The company’s stock has risen 39%, it achieved a $1.8 trillion market capitalization to become the third largest publicly traded company after Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) and it has replaced electric vehicle maker Tesla as the most widely traded U.S. stock. In the last 12 months, NVDA stock has gained 224%, making it the top performer in the benchmark S&P 500 index.
Now, with its latest earnings on tap, NVDA stock is down 5% as investors take some money off the table ahead of the print. Expectations are high. Forecasts are calling for earnings per share (EPS) of $4.59, a more than 700% increase from the same quarter a year ago. Some analysts are saying that an earnings miss by Nvidia could bring the entire stock market rally to a screeching halt. The stakes are high and the pressure is intense. But Nvidia could stand to slow down a bit after its red hot run over the last year.
On the date of publication, Joel Baglole held long positions in NVDA, MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
