U.S. equities continue to be the best performing financial assets on the planet. The Nasdaq Composite, as of the end of trading on Tuesday, has rallied 17.8% on a year-to-date basis, while its counterpart index, the S&P 500 has climbed 14.7%. Positive signs coming from the May consumer price index (CPI) report, released last week, will help to spur confidence in equities investors.
However, not every U.S. stock is a sure buy. The rise of generative artificial intelligence (AI) incited an unprecedented rally in equities, even in some that were even loosely related to artificial intelligence. These are overhyped stocks and even positive macroeconomic data points will not stop their share prices from crashing at one point or another.
In this article, we delve through three overhyped stocks to sell that experienced surges in their share prices over the past twelve months. These are likely to see some downward pressure on a going-forward basis.
Palantir (PLTR)
The data analytics firm Palantir (NYSE:PLTR) has been a favorite of many investors, including those populating the subreddit r/WallStreetBets. There is a lot of love for the company’s CEO Alex Karp and co-founder Peter Thiel, but even outside of these two personalities, the data analytics platform has earned a name for itself in broader software space.
The software products Gotham and Foundry – the former of which is a data analytics product for governments and defense agencies, while the latter is tailored for modern enterprises – have gained much traction in recent years. The announcement of the new AI Platform, which helps businesses to layer large language models (LLMs) into their data pipelines and workflows, created a huge buzz around PLTR stock. Shares are up 58.4% over the past twelve months.
The firm’s Q1 earnings report for FY24, despite beating Wall Street estimates, issued a lower guidance than analysts had anticipated. The AI Platform, though gaining traction, isn’t the growth lever investors hoped for, potentially leading to shares falling in June.
SoundHound AI (SOUN)
SoundHound AI (NASDAQ:SOUN) is another AI overhyped stock to sell. According to the startup’s SEC 10K Filing, SoundHound AI leverages “proprietary” technology to build out its Voice AI product that “enable[s] businesses to deliver high-quality conversational experiences to their customers.” In essence, content creators, automotive companies, and IoT product developers, amongst others, can deploy SoundHound’s Voice technology for a variety of use-cases.
After investors found out AI chip behemoth Nvidia (NASDAQ:NVDA) has invested in SoundHound AI, the startup’s shares skyrocketed as much as 320.3% for the year. A short report from Capybara Research deflated much of investor enthusiasm though. The report alleged SoundHound’s product was not very unique from what was already on the market. As a result, the startup would likely have to confront intense competition in the near term.
Even a good Q1 earnings report that saw the firm’s net loss narrow and revenue rise have not saved its shares from plummeting more than 54% over the past 3 months.
Tesla (TSLA)
To be fair, American electric vehicle (EV) producer Tesla (NASDAQ:TSLA) has always had some hype behind its name, thanks to the company’s successful branding and polemic CEO Elon Musk. And some of that hype was indeed justified. TSLA’s share price surged over 11x in value in the past five years, giving long-term investors something to celebrate.
However, the EV maker’s share price has really taken a beating in 2024. Elevated interest rates and high inflation have embroiled the broader EV market. Ultimately, this creates a slowdown in both deliveries as well as earnings growth. Tesla has probably been one of the EV makers to be most afflicted by the EV slump. Q1 deliveries decreased on a year-over-year basis for the first time since 2020. An array of price cuts has not seemed to spur sales growth either. Moreover, new products like the Cybertruck have faced derision.
TSLA shares have fallen 25.6% since the start of the year. Without a swift recovery in EV sales and deliveries, Tesla share price could very well plummet.
On the date of publication, Tyrik Torres 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.
