While the current rally in equities looks to have legs, there are certain pockets of the market that are starting to get frothy. Stocks associated with artificial intelligence (AI) and cryptocurrencies have seen massive runs since the start of the year and look as though they could be in for a pullback if not a full-blown correction. Due to irrational hype and overblown expectations, some stocks have seen their share price more than double in just over two months. For these white hot stocks, it likely wouldn’t take much to bring them crashing back to earth. One earnings miss, an analyst downgrade or disappointing economic news and these overhyped stocks will likely be the first to fall. With caution in mind, we offer the following three overhyped stocks to avoid in March 2024.
Super Micro Computer (SMCI)
On the day of this writing, shares of data-server provider Super Micro Computer (NASDAQ:SMCI) are up 25% on news that its stock is being added to the S&P 500 index on Mar. 18. Through two months of the year, SMCI stock is now up nearly 300%, bringing its 12-month gain to 1,053%. A major understatement would be to say the market is overhyping the stock. Super Micro Computer has become emblematic of what a growing number of analysts see as a bubble forming among stocks associated with artificial intelligence (AI).
While Super Micro Computer has reported strong growth and earnings in recent quarters, and being added to the benchmark S&P 500 index is beneficial, it doesn’t justify the parabolic move in its stock. SMCI stock has been surging upwards based on its work supplying servers for the microchips made by Nvidia (NASDAQ:NVDA) that power AI applications. Meme stocks, such as GameStop (NYSE:GME), saw similar huge gains back in 2021. And we all know how that ended.
MicroStrategy (MSTR)
Also riding the hype train right now is the stock of MicroStrategy (NASDAQ:MSTR). The catalyst here is cryptocurrency and the fact that the software firm holds a stake in Bitcoin (BTC-USD) that is currently worth more than $11 billion. With BTC trading at $66,500, MSTR stock has been on fire lately, up 21% on the day these words are being typed, and up 91% year-to-date. In the past 12 months, MicroStrategy’s share price has gained 452%.
MSTR stock really took off after the company disclosed on Feb. 26 that that it had acquired an additional 3,000 Bitcoins at a cost of $155 million. MicroStrategy now owns a total of 193,000 Bitcoins whose value is fast approaching $12 billion. The company is the world’s largest holder of cryptocurrency. MicroStrategy, while still technically a business intelligence software firm, has its stock value almost entirely tied to its Bitcoin stake. That should be worrisome to shareholders given BTC’s volatile nature.
Arm Holdings (ARM)
Shares of Arm Holdings (NASDAQ:ARM) are up 102% this year as the British chipmaker also benefits from the hype surrounding AI. In February share prices rose 90% after the company reported financial results exceeding Wall Street estimates and strong forward guidance. After its latest earnings print went public and management commented to media and analysts with liberal helpings of “AI” talk, ARM stock jumped 48%.
The company, which went public last fall, announced earnings per share (EPS) of 29 cents versus 25 cents that was expected among analysts. In Arm’s fiscal third quarter, revenue came in at $824 million, exceeding the Wall Street forecast of $761 million. Arm shipped 7.7 billion chips during the recent quarter, noting growing demand due to the rise of AI. While the rapid growth in ARM stock is exciting, it could be in for a big correction. On Mar. 12, the 180-day post-IPO lockup period on ARM stock expires, allowing insiders to sell their shares in the company and take profits.
On the date of publication, Joel Baglole held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
