With the stock market reaching new record highs, the list of stocks to sell grows. Driven in part by expectations around artificial intelligence (AI) developments, several companies have become significantly overextended relative to their underlying financial performance.
While broader economic and monetary conditions support ongoing gains across indices, not all firms will be wise long-term investments, with some stocks to sell. Valuations have expanded sharply alongside rising markets,. The S&P 500 now trades above its 10-year average price-to-earnings (P/E) ratio.
Certain businesses, especially within the AI sector, appear to have benefited from an overabundance of hype, with executives putting an emphasis on AI but lacking the financial results to justify recent stock price moves. For traders seeking the next major success story, there is a risk that promotions will overstate a company’s potential.
Below are several stocks to sell that may have benefited disproportionately from the positive sentiment around AI. Yet, they lack the fundamentals to support current share price levels over the longer term.
Super Micro Computer (SMCI)
The data center hardware manufacturer Super Micro Computer (NASDAQ:SMCI) has seen its stock price double this year, even though we are less than two months into 2024. SMCI has benefitted from increased demand for data center infrastructure to support the growth of AI, with sales to these facilities rising accordingly. While the company exceeded its own revenue forecasts and management reported outstripping supply with demand, analysts have adopted a more cautious outlook.
Currently trading on a staggering P/E ratio of 61.8x, analysts’ consensus price target sits at just over $700 per share, below the stock’s present value of $787.57. This divergence suggests the valuation may still be susceptible to a downward adjustment in the short term, making SMCI one of the stocks to sell before it’s too late.
Uranium Energy (UEC)
Over the last twelve months, Uranium Energy Corp (NYSEAMERICAN:UEC) has risen approximately 97%, mirroring the 99% increase in the price of uranium over the same period. While the company holds substantial uranium reserves, explaining the correlation, it has yet to commence mining operations. UEC’s current $6.64 billion market cap starkly contrasts its reported sales of merely $100 thousand sales last year. This results in an extraordinary P/E ratio of 671x.
The company may achieve profitable operations upon fully entering the uranium sector in the future. But, this appears to be several years away. In the interim, investors could sour on the company’s highly inflated valuation, especially if the uranium price reverses. Given its speculative nature, high valuation relative to current operations and uncertainty over the timeline of commencing mining, UEC could be considered a stock to sell.
Marvell Technology (MRVL)
Marvell Technology Inc (NASDAQ:MRVL) is another semiconductor company that has rallied on the AI buzz, rising 60% over the last year as investors focused on the so-called “second wave” of AI.
The demand for advanced computing infrastructure would require more semiconductor components. So, companies like Marvell are poised to benefit as it produces chip products supporting data centers. However, despite extensive discussions around AI applications, Marvell’s revenue declined year over year (YOY), according to its latest financial report. The bottom line performance was worse still, shifting from profit to loss.
Unless a significant upturn in revenues and profits materializes when it next reports earnings on March 7, shareholders may determine that better opportunities exist elsewhere and opt to divest from this stock. Given these circumstances, MRVL could be considered among the stocks to sell before further potential decline.
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.
