The market is on an incredible bull run. Since the fall of 2022, growth and technology stocks have been going virtually straight up.
And, fundamentally, there’s a solid reason for that. We are seeing real breakthroughs in fields such as semiconductors and artificial intelligence right now. While it’s still early in this new technology paradigm, it’s already becoming apparent that fortunes are being made riding this wave.
That said, a growth stock boom isn’t a good excuse to buy all technology companies indiscriminately. While many companies are enjoying strong fundamentals at the moment, other firms look more like tech pretenders than future champions. These three overrated stocks to sell have seen their valuations run far ahead of the underlying fair value of their respective businesses.
Marvell Technology (MRVL)
Source: Michael Vi / Shutterstock.com
Marvell Technology (NASDAQ:MRVL) is a semiconductor company with a variety of chip operations. The company is most well-known for its System-on-a-Chip architectures along with Ethernet solutions, electro-optical products and custom application specific integrated circuits.
While Marvell is a broadly-diversified semiconductor company, its AI product offerings are driving the conversation right now. Marvell makes a point of highlighting its partnership with Nvidia (NASDAQ:NVDA) and its focus on delivering AI infrastructure for the AI Era.
MRVL stock has jumped from around $40 in early 2023 to more than $70 per share now on the expectations that these AI strategies will turn into profits.
So far, this simply hasn’t happened. In fact, the company’s recent Q1 earnings report was a fiasco. The company reported merely in-line results, whereas traders had been hoping that the AI buzz would turn into a big earnings beat.
Making matters worse, Marvell somehow reported a 12% year-over-year decline in revenues despite all the AI hype. At some point, Marvell’s AI business may start to catch on with customers. But with the stock at 50 times forward earnings, investors are paying a high price for this possibility.
Dell Technologies (DELL)
Source: Ken Wolter / Shutterstock.com
Dell Technologies (NYSE:DELL) used to be at the forefront of major trends in consumer electronics hardware. Traders rushed to own Dell shares back in the dot-com era thanks to the company’s promise.
But that magic wore off many years ago. More recently, Dell has been a slower-moving consumer electronics and IT vendor. These sorts of companies generally earn low valuations. While a cash cow business has value, the lack of growth tends to limit excitement.
Traders have given DELL stock a fresh look over the past year, however. Shares are up more than 200% over the past 12 months. This comes thanks to Dell’s push into selling AI-enabled servers and hardware.
There is rapid growth here, and Dell is seeing real momentum for the first time in a while. But there is a major red flag here. Profitability on server sales appears to be underwhelming. Toni Sacconaghi, an analyst at Sanford Bernstein, in a cautious research piece noted that there are: “concerns that AI servers are being sold at near-zero margins.” Dell can sell plenty of AI-hardware, but it remains to be seen if it has a competitive moat to earn sizable profits on this business.
Sacconaghi isn’t the only analyst with questions. Morningstar’s William Kerwin sees more than 50% downside for DELL stock, as he believes fair value is merely $65 per share.
CrowdStrike (CRWD)
Source: Michael Vi / Shutterstock
CrowdStrike (NASDAQ:CRWD) is a leading cybersecurity company. It offers a cloud-based suite of solutions for protecting endpoints, workloads, user identity and data.
CrowdStrike has been an incredible growth story. It has increased its revenues from $481 million in fiscal year 2020 to $3.1 billion in fiscal year 2024. There’s no disputing that track record of success, and its industry has considerable growth drivers as well.
However, the company is only modestly profitable. Shares are trading at around 100 times estimated adjusted fiscal year 2025 earnings. Making matters worse, excluding those adjustments, the company is trading at a shocking 725 times GAAP trailing earnings.
If CrowdStrike could keep up its stratospheric revenue growth rate, maybe it could grow into this valuation within a reasonable timespan. However, as the company grows, its revenue growth rate is trailing off, with analysts seeing it drop to the mid-20s annually in fiscal year 2026. Rising competition within the industry threatens to further slow growth rates, pressure pricing and increase customer churn.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
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The post Hype Dreams and Value Nightmares: Waking Up to the Truth About 3 Overrated Stocks appeared first on InvestorPlace.
The market is on an incredible bull run. Since the fall of 2022, growth and technology stocks have been going virtually straight up.
And, fundamentally, there’s a solid reason for that. We are seeing real breakthroughs in fields such as semiconductors and artificial intelligence right now. While it’s still early in this new technology paradigm, it’s already becoming apparent that fortunes are being made riding this wave.
That said, a growth stock boom isn’t a good excuse to buy all technology companies indiscriminately. While many companies are enjoying strong fundamentals at the moment, other firms look more like tech pretenders than future champions. These three overrated stocks to sell have seen their valuations run far ahead of the underlying fair value of their respective businesses.
Marvell Technology (MRVL)
Source: Michael Vi / Shutterstock.comMarvell Technology (NASDAQ:MRVL) is a semiconductor company with a variety of chip operations. The company is most well-known for its System-on-a-Chip architectures along with Ethernet solutions, electro-optical products and custom application specific integrated circuits.
While Marvell is a broadly-diversified semiconductor company, its AI product offerings are driving the conversation right now. Marvell makes a point of highlighting its partnership with Nvidia (NASDAQ:NVDA) and its focus on delivering AI infrastructure for the AI Era.
MRVL stock has jumped from around $40 in early 2023 to more than $70 per share now on the expectations that these AI strategies will turn into profits.
So far, this simply hasn’t happened. In fact, the company’s recent Q1 earnings report was a fiasco. The company reported merely in-line results, whereas traders had been hoping that the AI buzz would turn into a big earnings beat.
Making matters worse, Marvell somehow reported a 12% year-over-year decline in revenues despite all the AI hype. At some point, Marvell’s AI business may start to catch on with customers. But with the stock at 50 times forward earnings, investors are paying a high price for this possibility.
Dell Technologies (DELL)
Source: Ken Wolter / Shutterstock.comDell Technologies (NYSE:DELL) used to be at the forefront of major trends in consumer electronics hardware. Traders rushed to own Dell shares back in the dot-com era thanks to the company’s promise.
But that magic wore off many years ago. More recently, Dell has been a slower-moving consumer electronics and IT vendor. These sorts of companies generally earn low valuations. While a cash cow business has value, the lack of growth tends to limit excitement.
Traders have given DELL stock a fresh look over the past year, however. Shares are up more than 200% over the past 12 months. This comes thanks to Dell’s push into selling AI-enabled servers and hardware.
There is rapid growth here, and Dell is seeing real momentum for the first time in a while. But there is a major red flag here. Profitability on server sales appears to be underwhelming. Toni Sacconaghi, an analyst at Sanford Bernstein, in a cautious research piece noted that there are: “concerns that AI servers are being sold at near-zero margins.” Dell can sell plenty of AI-hardware, but it remains to be seen if it has a competitive moat to earn sizable profits on this business.
Sacconaghi isn’t the only analyst with questions. Morningstar’s William Kerwin sees more than 50% downside for DELL stock, as he believes fair value is merely $65 per share.
CrowdStrike (CRWD)
Source: Michael Vi / ShutterstockCrowdStrike (NASDAQ:CRWD) is a leading cybersecurity company. It offers a cloud-based suite of solutions for protecting endpoints, workloads, user identity and data.
CrowdStrike has been an incredible growth story. It has increased its revenues from $481 million in fiscal year 2020 to $3.1 billion in fiscal year 2024. There’s no disputing that track record of success, and its industry has considerable growth drivers as well.
However, the company is only modestly profitable. Shares are trading at around 100 times estimated adjusted fiscal year 2025 earnings. Making matters worse, excluding those adjustments, the company is trading at a shocking 725 times GAAP trailing earnings.
If CrowdStrike could keep up its stratospheric revenue growth rate, maybe it could grow into this valuation within a reasonable timespan. However, as the company grows, its revenue growth rate is trailing off, with analysts seeing it drop to the mid-20s annually in fiscal year 2026. Rising competition within the industry threatens to further slow growth rates, pressure pricing and increase customer churn.
On the date of publication, Ian Bezek 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.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.More From InvestorPlace
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Musk’s “Project Omega” May Be Set to Mint New Millionaires. Here’s How to Get In.
Legendary Investor Predicts: “Forget A.I. THIS Technology Is the Future”
The post Hype Dreams and Value Nightmares: Waking Up to the Truth About 3 Overrated Stocks appeared first on InvestorPlace. Read MoreNASDAQ:MRVL,NYSE:DELL,NASDAQ:CRWD, Stocks to Sell
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