Tech stocks are leading the way for September’s notoriously choppy trading window. The tech-heavy Invesco QQQ ETF (NASDAQ:QQQ) is down 2% since the beginning of the month, in line with broader market trends. To that end, many investors are looking for stocks on sale and hunting for dip-buying opportunities.
Those investors would be well advised to carefully consider which controversial tech stocks are worth an investment in today’s environment. Just because a stock is near record lows or hit the market with a post-IPO bang, doesn’t mean it’s worth adding to a portfolio. Instead, investors should consider longevity, potential, past performance, and market penetration.
BAIL: Nikola Corp (NKLA)
Nikola (NASDAQ:NKLA) stock popped nearly 40% on Monday. The sudden burst came after the perpetually struggling electric vehicle (EV) firm announced a fresh addition to its executive team. New chief operating officer (COO) Mary Chan has a robust resume, including a leadership role at General Motors (NYSE:GM). But even Chan’s industry experience won’t be enough to save this controversial tech stock.
Instead, Nikola’s recent reversal displays the tell-tale signs of a dead cat bounce. When your founder gets a fraud conviction, your batteries catch fire, and you face costly recalls, any news is positive. However, Nikola simply doesn’t have viable operational success or profitability in its future. That sentiment is doubly true as it faces stiffer competition from EV-centric firms and legacy automakers alike.
Notably, the company is rapidly running out of cash. With dwindling cash balances and an increasingly costly production process, Nikola is grasping at straws stay afloat. Recently, Nikola raised money through an emergency convertible note sale, with the notes paying 5% annually. That’s a debt cost Nikola simply can’t afford at its current burn rate. Like hiring a new COO, this is likely a last-ditch effort to stay afloat.
BAIL: Arm Holdings (ARM)
Arm Holdings (NASDAQ:ARM) hit the market hard last week. The chipmaker shot up to nearly $66 per share after IPO. Since then, it settled substantially and now trades in the $58 range. That’s still arguably overpriced, as the firm trades at a 153x price-to-earnings ratio, which is high by even AI-driven semiconductor standards. The inarguable semiconductor king, Nvidia (NASDAQ:NVDA) trades at “just” 106 times earnings. However, Nvidia has something Arm doesn’t – recurring growth.
While Nvidia and similar firms’ sales and income exploded on AI exuberance, Arm’s annual revenue fell 1% in its fiscal year ending March 31st. In an era fueled by chipmaker speculation reminiscent of the Dot-Com era, a semiconductor loser like Arm doesn’t stand a chance long-term.
If you haven’t yet bought Arm but want to round out your AI-centric portfolio, wait until it trades at something approximating fair value. If you already hold this controversial tech stock, it is time to bail before its true reckoning comes.
BUY: Palantir Technologies (PLTR)
Palantir Technologies (NYSE:PLTR) fell under the radar this month, but the data analytics firm usually tops investors’ list of controversial stocks. This is all foor good reason as the company was lumped into meme stock mania in 2021 as the share price ballooned far beyond a reasonable valuation. However, Palantir’s on a solid path to success, meaning now might be the time to add this tech stock back into your portfolio (or buy more).
Of course, Palantir is riding the current AI wave, with one analyst calling the company the “Messi of AI.” However, Palantir has long leveraged AI and machine learning tools and is decidedly not one of the bandwagon-jumpers slapping “AI” labels on a suite of unrelated products. At the same time, Palantir is finally breaking further into the commercial sector, diversifying away from its reliance on government contracting. While governments are a lucrative client base, it’s best to diversify as much as possible. Palantir’s growing commercial portfolio will likely lead to a snowball effect as more corporate bodies take note of competitors success with the platforms. If you’re in the market for tech stocks, this one is worth your investment!
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
