Identifying opportunities and risks within the ever-evolving stock market landscape is crucial for investors aiming to make informed decisions. This research examines three well-known tech stocks and finds strong arguments for selling them before the next market correction.
Let’s start with the first one. It’s a massive social media platform with great user engagement stats, but its growth trajectory is unpredictable due to its dependency on outside variables like world events and algorithm tweaks.
While leading the way in machine vision technology, the second company needs help making money because it depends too much on declining end sectors, especially semiconductors and consumer electronics. Due to its inadequate diversification strategy, the corporation is more susceptible to industry changes.
Lastly, the third company is well-known for its innovation and market leadership. However, it sees a drop in revenue from its core goods as the competition for tablets grows. Swings further hamper sustained growth in the wearables and accessories market.
When one delves into the complexities of these tech behemoths, one finds underlying weaknesses that call for prudence.
Reddit (RDDT)
Reddit (NYSE:RDDT) depends on user engagement metrics for measuring growth and use, such as Weekly Active Unique (WAUq) and Daily Active Unique (DAUq). For instance, in Q4 2023, the global DAUq increased by 27% year-over-year (YoY). Here, the U.S. fraction is expanding by 34% YoY, and the rest of the world is growing by 21% YoY.
Similarly, in Q4, the U.S. experienced a 14% sequential rise, while the rest of the globe saw an 8% gain. Global DAUq growth was 11% compared to Q3. An inflection point may be identified by comparing the YoY and consecutive increases in the user metrics.
Fundamentally, Reddit’s user engagement ratings are unstable because of external influences, including global events, societal shifts and adjustments to search engine algorithms. For example, the platform’s growth is highly dependent on outside factors, which makes steady growth uncertain. While certain occurrences, such as the COVID-19 pandemic, led to a rise in user growth, when the pandemic’s impacts decreased, there were subsequent drops.
Crucially, logged-out users make up a sizable amount of Reddit’s incremental user growth; these individuals do not earn at the same pace as logged-in users. As of 2023, 75% of the new users recruited since July 2023 were logged out. Hence, this has presented difficulties for revenue generation and monetization.
Cognex (CGNX)
When comparing quarterly and yearly results, Cognex‘s (NASDAQ:CGNX) revenue decreased in almost every end market. The markets with the largest decreases were semiconductors, consumer electronics and logistics. For example, revenue in Q4 2023 fell by 18% from Q4 2022. Meanwhile, sales from China fell even more throughout the quarter, indicating a challenging economic climate.
Moreover, Cognex’s revenue problems were exacerbated by its overreliance on end sectors experiencing severe downturns, such as semiconductors and consumer electronics. The reduction in income from these areas shows the company’s poor diversification strategy and susceptibility to swings in particular industries. Even if the performance of some end markets, such as packaging and the automotive industry, was comparatively steady, it could not offset the losses in other industries.
In 2023, revenue fell in every area, with China seeing the biggest drop. China’s revenue fell even more in Q4 2023, indicative of the challenging economic climate there. Hence, Cognex’s performance in global markets, especially in China, indicates difficulties adjusting to shifting market dynamics and economic uncertainty. Overall, the company is susceptible to geopolitical and economic issues in strategic geographic regions, as highlighted by the drop in revenue from China.
Apple (AAPL)
With $7 billion in revenue for Q1 2024, Apple‘s (NASDAQ:AAPL) iPad revenue saw a notable 25% YoY fall. One fewer sales week and a difficult comparison with introducing new iPad models in Q1 caused this dip. Additionally, despite the iPad’s performance and adaptability, competitors’ more reasonably priced tablet options pose a greater threat to the company’s share of the tablet industry.
The drop in iPad sales highlights Apple’s inability to maintain tablet category growth. Even if iPads are still well-liked by some groups of people, such as professionals and students, the income is dropping. This suggests that retaining market share and customer interest may take time and effort. Furthermore, Apple may need help generating demand for its iPad goods as the market becomes more competitive and tablet replacement cycles extend. Hence, this would limit the company’s ability to develop quickly in this market.
Finally, the Wearables, Home, and Accessories segment’s erratic revenue reveals a flaw in Apple’s capacity to sustain steady growth in this product area. For the company, wearables and accessories are a significant top-line source. Therefore, their susceptibility to seasonal fluctuations and launch cycles makes quick expansion difficult.
On the date of publication, Yiannis Zourmpanos did not hold (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.
