Is the AI bubble ready to explode? Some experts worry that the price of some tech stocks could collapse, as investors tend to overestimate the adoption of new technologies.
These 4 tech stocks can fall by 86%, according to analysts. artificial intelligence (AI), considered the next big trend after the advent of the Internet, promises to revolutionize industries and markets, offering opportunities for exponential growth and limitless innovation.
However, behind these optimistic prospects lurk doubts on the part of some Wall Street analysts and some are already talking about a "bubble". In fact, they predict a significant drop in the price of some of the main tech companies operating in the AI sector. But that doesn’t mean AI is no longer a beacon of innovation and economic growth. Economic projections from PwC suggest that AI’s impact on the global economy will rise to $15.7 trillion by 2030.
However, some AI stocks that have grown exponentially in the last year could reverse course in the short term, even falling by up to 86%. Let’s see which titles these are and why.
1) Tesla
Tesla is among the stocks most at risk of collapse according to analysts, who fear a decline of approximately 86% of its current value, up to $23.53 per share.
On the one hand, Tesla made history by becoming the first automotive company to independently build large-scale vehicles in over half a century. It is also the only player in the EV industry to generate recurring profits, with four consecutive years of profitability through the end of 2023.
However, Tesla faces potentially game-changing challenges as demand for electric vehicles begins to decline. Throughout 2023, the company has reduced the selling price of its four production models (3, S, X and Y) on several occasions. The result was a halving of operating profit from the last quarter of 2022 (from 17.2% to 8.2%, as of December 31, 2023).
Perhaps an even bigger problem is that Tesla has failed to become more than just a car company. Energy Generation and Storage segment sales have been stagnant in recent quarters, while Services generates a low-single-digit gross margin. It should be added that the solar sector has generated money losses since the acquisition of SolarCity in 2016.
Despite being nothing more than an automotive company, Tesla is valued at nearly 60 times expected earnings for 2024. Whereas most automotive stocks trade in a range of 6-8 times earnings per share expected, there is certainly reason to believe that Tesla’s stock price could fall further.
2) MicroStrategy
MicroStrategy is another AI company that could face a serious devaluation according to some Wall Street analysts. Last year, a Jefferies analyst gave a $210 target price for MicroStrategy, which would imply a decline of 85% from current prices.
MicroStrategy is facing a major problem: Its industry - AI-powered business analytics software - stopped growing 10 years ago. Sales are down 14% overall from the peak.
However, MicroStrategy is better known for CEO Michael Saylor’s strategy of issuing convertible debt and using the proceeds to purchase Bitcoin: according to the CEO’s latest statements, the company holds 214,246 Bitcoins, more than 1 % of total supply, at an average price of approximately $35,160 per token.
With a market capitalization currently at $24.4 billion, MicroStrategy trades at a 70% premium to the Bitcoin it holds.
However, according to experts, it is not worth buying MicroStrategy even to have exposure to Bitcoin (it is better to buy a spot Bitcoin exchange-traded fund (ETF) or a direct purchase of the cryptocurrency on an exchange).
3) Super Micro Computer
Among the companies at risk of collapse we also find Super Micro Computer. After a price increase of 746% in the last year, the stock may struggle to maintain the same growth rate. Furthermore, a bearish "head and shoulders" is forming on the daily chart of Super Micro Computer (starting from the February highs), which fuels the fear of a sell-off up to at least $500.
But the decline could then continue up to $250, the target indicated by a Susquehanna analyst. This would imply a loss of 72% of the current value of Super Micro Computer.
The server and storage solutions company incorporates Nvidia ’s high-end GPUs into its highly energy-efficient and highly customizable rack servers used in AI-accelerated data centers. The company’s sales are expected to double in 2024 to more than $14 billion. But if Nvidia continues to face supply/shortage issues for its GPUs, Super Micro will fail to realize its full potential.
4) Palantir Technologies
The latest AI stock that could take a sharp nosedive is data-mining firm Palantir Technologies. RBC Capital cut Palantir’s target price to $5 on the grounds that the company’s margins cannot continue to expand at the current pace. This would imply a drop of 78%.
Palantir’s current value is undoubtedly high. Its market capitalization of nearly $51 billion represents nearly 19 times expected sales this year and 70 times expected EPS in 2024, despite slower sales growth.
However, there is a reason that justifies this significant premium: the indispensability of Palantir. No other large-scale company can compete with the solutions Palantir offers. Its AI-powered Gotham platform is key to helping governments manage complex data and plan military operations. Long-term contracts with the US government generate reliable and predictable cash flows.
Other analysts are more neutral on the stock: Citigroup expressed a "hold" rating indicating a target price of $20 (which implies a drop of 11% from current values), while Jeffries indicated a fair value at $22 (-2.6% from the current price). While it may take some time for Palantir to fully justify its current valuation, RBC Capital’s price target is unlikely to be reached in the near term.
| DISCLAIMER The information and considerations in this article should not be used as the sole or primary basis for making investment decisions. The reader maintains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk propensity and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to the public for savings. |
Original article published on Money.it Italy 2024-04-14 14:02:00. Original title: Questi 4 titoli tech possono crollare dell’86% (secondo gli analisti)
