The tech sector can do no wrong. From falling interest rates to the growth of AI and strong earnings, everything is coming up roses for Nasdaq stocks. However, there are some Nasdaq stocks to sell that you need to erradicate from your portfolio.
However, as with any massive run, a correction is likely to come once the current euphoria abates. Furthermore, this rally has caused some Nasdaq stocks in particular to become strong sells given their uncertain outlooks and massive valuations. It’s time to ring the register and dump these three Nasdaq stocks while they are still flying high today.
Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) has been one of the hottest stocks in the market over the past quarter. Incredibly enough, SMCI shares are up more than 700% over the past 12 months and year-to-date gains are above 150%.
It’s not hard to see why. The company makes key infrastructure that goes into AI equipment and machines. Super Micro Computer has great partnerships and is an important supplier to Nvidia (NASDAQ:NVDA). Nvidia, for its part, is reporting record earnings and that has given traders the sense that Super Micro Computer will continue its inexorable climb.
However, some analysts are beginning to suggest that SMCI stock may be over-hyped. Shares are trading at massive multiples to revenues and free cash flow. If AI sales growth slows down, Super Micro shares would likely give back a large chunk of their recent gains.
In addition, Super Micro Computer just announced a convertible bond offering on Wednesday. This would serve as dilution if shares rally further from here. Historically, convertible bond offerings often signal turning points for a hot momentum stock. As such, SMCI stock could be set for a major pullback in coming weeks.
Autodesk (ADSK)
Autodesk (NASDAQ:ADSK) provides 3D design, engineering, and entertainment technology solutions worldwide. The firm’s AutoCAD software is a key product for professional architects, designers, engineers, and other such professionals.
Autodesk has had a somewhat messy couple of years. It is transitioning much of its billing from licenses to recurring revenues, which affects near-term revenues and cash flow. Throw in a general slowdown in parts of the enterprise software space, and the company’s revenue growth rate has now dipped into the high single digits.
That’s not great news given that the company is trading at 60 times trailing GAAP earnings. Even on an adjusted basis, shares are at 35 times forward earnings, which is a steep level for a slower-growing software company that is in a business model transition.
Regardless, ADSK stock has rallied significantly over the past quarter. Some analysts are pointing to Autodesk as a potential AI winner. However, AI also seems like a significant risk, as new workflows around computer-assisted modeling could put lots of professionals out of business and reduce Autodesk’s client pool.
All this to say that Autodesk’s recent rally is on shaky footing given the valuation and business model questions. You can see why this made our list of Nasdaq stocks to sell.
jFrog (FROG)
jFrog (NASDAQ:FROG) is a hybrid software company focused on managing software supply chains.
Especially with the advent of remote work, large enterprises can be utilizing dozens of different software products and repositories and often different builds or version of those software tools as well. jFrog helps bring order to this chaos, ensuring that IT departments can manage and safeguard their software ecosystems.
This has been a useful service, and jFrog has grown its revenues from $151 million in 2020 to $350 million for 2023.
However, this doesn’t seem to be enough to justify the valuation. Shares have nearly doubled since their lows last fall. After the run, FROG stock now goes for 12 times revenues and about 70 times forward earnings. This is way too high a multiple for a company with a moderate growth rate and marginal profitability. Make sure you axe out this and the other Nasdaq stocks to sell we mentioned.
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.
