Tech stocks, known for their high-risk nature, saw significant investments during the pandemic, with cheap money fueling tech and crypto for lucrative returns. However, as central banks tighten monetary policies, investors are cashing in their gains, leading to an expected decline in prices.
In the realm of digital innovation, even the strongest companies may need a break. It’s time to discuss overvalued tech stocks, not with a focus on shorting them, but on taking profits as we enter the potentially challenging month of October. Here are three overvalued tech stocks I think need to be re-evaluated right away.
MicroStrategy (MSTR)
MicroStrategy (NASDAQ:MSTR) primarily deals in business intelligence software and cloud services but has gained significantly from its substantial Bitcoin (BTC-USD) holdings. With over $4 billion worth of Bitcoin, the company’s stock surged as Bitcoin’s price rose 70% this year, resulting in a 127% year-to-date increase in MicroStrategy’s share price.
One key risk with MSTR stock is its substantial Bitcoin holdings. The stock’s value is closely tied to Bitcoin’s performance, meaning if Bitcoin declines, so does MSTR’s book value, affecting its liquidity. That makes investing in MSTR similar to buying Bitcoin but with added risks due to specific market factors.
While it offers potential rewards in artificial intelligence (AI) and Bitcoin, these risks don’t necessarily balance out in proportion to the rewards.
Coinbase (COIN)
Coinbase (NASDAQ:COIN) is a blockchain leader, delivering a remarkable 120% year-to-date return. On the other hand, its revenue dipped to $662.5 million in June 2023, a 17% decline. Still, total revenue reached $707.9 million, 12% above expectations.
Coinbase’s recurring revenue declines are a red flag for Cathie Wood stocks. Q2 revenue dropped by 11.8% year-over-year, a concerning trend for high-valued stocks tied to robust revenue growth. Coupled with its unprofitability, Coinbase faces elevated risks. The SEC’s request to limit trading on most cryptocurrencies adds further uncertainty to its business model.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is striving to boost electric vehicle (EV) deliveries but had to cut prices due to weaker consumer demand. Despite historically strong margins, recent margin decline and ongoing price cuts could harm Tesla’s profitability in upcoming reports. That poses a challenge for Tesla stock in the near future.
TSLA stock is falling as analysts grow more pessimistic. Concerns include margins, lower volumes, discounts, weak demand and a lack of new offerings, potentially requiring price cuts next year.
Tesla’s steep valuation, trading at around 56 times 2024 earnings estimates, could be risky for conservative investors. Lackluster Q3 delivery and production numbers have raised doubts about Tesla’s future sales potential.
On the date of publication, Chris MacDonald 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.