With the painful market sell-off kicking things up a notch to start the month of August, it’s not hard to imagine many investors are seeking an exit point from some of their vulnerable stocks. Indeed, those “AI bubble” fears you may have heard about feel more real than ever. This is especially true with the Nasdaq 100 sinking into correction territory in just a few weeks.
Though it’s always scary to catch a falling knife, market sell-offs do tend to be great buying opportunities in the grander scheme of things. At least this is true for pain-tolerant investors.
For everybody else, the latest sell-off may be ringing alarm bells. This is especially true for semiconductor investors who’ve refused to take profits amid the past few years of incredible gains. It’s impossible to tell which stocks will crash from here and by how much. However, the following names, I believe, look technically unsound and still expensive.
Time will tell how the market sell-off plays out in August. I think it’ll be a great longer-term buying opportunity for those who pick their spots carefully. However, if you’re too heavy in the following names, it’s likely not too late to do some trimming.
Super Micro Computer (SMCI)
Super Micro Computer (NASDAQ:SMCI) seems like the perfect stock to bet against if you believe there’s an AI bubble bursting. Though I don’t view AI stocks as in a dot com era-esque type of bubble, it’s hard to argue that a lot of froth has built up in some of the past year’s biggest AI winners.
At the time of this writing, SMCI stock is rolling over fast. The AI data center top dog has shed more than 47% of its value since peaking back in March. Despite getting cut nearly in half, SMCI shares are still up 118% year to date. Clearly, the stock could get cut in half again and still be in the green on the year.
With the company launching an intriguing plug-and-play infrastructure solution for the Nvidia (NASDAQ:NVDA) Omniverse, the firm is making shows that it still has the AI growth chops. And while the stock looks like a steal at 34.8 times trailing price-to-earnings (P/E), it’s tough to get behind the name as investors turn against tech and AI in a big way.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) added fuel to the broad stock market sell-off after it missed the mark on revenues for the second quarter. In response, AMZN stock plunged almost 9%, as investors quickly threw in the towel on the fast-recovering Magnificent Seven e-commerce kingpin.
Sure, Amazon’s top line technically fell short of estimates, but not by much. Net sales of $147.98 billion were just a hair shy of the $148.56 billion estimate—a miss by less than a percentage point!
Meanwhile, cloud growth came in at a somewhat decent 19%, ahead of estimates but still less than some faster-moving public cloud firms. Relatively speaking, Amazon Web Services is walking briskly while some rivals may be sprinting into the cloud with AI.
In any case, I think the 9% single-day dip was overblown beyond proportion. Despite this, I’d not want to catch the falling knife immediately after earnings, as it’s still up a great deal from the 2022 lows. Still, this is one of the most vulnerable stocks.
Lululemon (LULU)
Finally, we have Lululemon (NASDAQ:LULU) stock, which shed another 5% of its value last Friday as broader markets crumbled. While the maker of yoga wear is insulated from the blast zone of AI and tech, the company has its own slate of unique woes that could be very hard to recover from.
Trendy fashions, like athleisure, tend to be just that: trendy. And, as you may know, chasing hot trends can be a risky endeavor as an investor. I have no idea where Lululemon goes from here as its stock sinks to multi-year depths not seen since 2020.
With the apparel firm recently getting slapped with a major downgrade from Goldman Sachs (NYSE:GS) analyst Brooke Roach, perhaps it’s time to part ways with LULU stock for good. Roach cut her price target by a whopping $177 to $286 per share.
Why is Roach’s confidence “fading” on the name?
Lululemon’s new Breezethrough leggings, which were paused in response to harsh customer criticism, have Roach concerned about “near-term execution.” She’s spot-on; the downgrade is more than warranted. Breezethrough was a disaster that couldn’t have come at a worse time and certainly one of the most vulnerable stocks.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Joey Frenette held a long position in Amazon. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
