Tech Stocks That Overpromise and Underdeliver: 3 Names to Avoid

Stocks to sell

Technology stocks continue to outperform and power the market higher. So far in 2024, the Nasdaq Composite index that is laden with tech securities is up 15%, bringing its 12-month gain to 30%. That’s ahead of both the benchmark S&P 500 index and the blue-chip Dow Jones Industrial Average. But while the sector as a whole continues to outperform, there are several overhyped tech stocks that are lagging behind.

The main reason why some tech stocks are in the red while the rest of the market is in the green is that the companies behind the securities have failed to deliver on the promises they made. Financial results have missed targets, forward guidance has been lowered and new products haven’t materialized when expected. This has hurt investor sentiment and led analysts to revise their outlooks downward for these stocks.

To avoid falling victim to overhyped tech stocks, investors should take a good look at each of the companies on this list. Paying attention to current financials and where a company may be heading in the future can prevent costly investment mistakes in this highly volatile market segment.

Intel (INTC)

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Has any tech company overpromised and underdelivered as much as microchip and semiconductor maker Intel (NASDAQ:INTC)? The company just delivered the latest in a series of disappointing quarterly financial reports, sending its share price down 8% as a result. Intel continues to struggle as it pivots to becoming a microchip foundry and not just a designer of chips and semiconductors. Not even $8.5 billion in funding through the U.S. government’s CHIPS and Science Act has helped the company.

Earlier this year, Intel unveiled a new artificial intelligence (AI) microchip called the Gaudi 3 that the company says can be used to train and deploy big AI models and chatbots. In launching the Gaudi 3 chip, Intel said that it is over twice as power-efficient and one-and-a-half times faster than Nvidia’s (NASDAQ:NVDA) competing H100 microchip. Investors seem skeptical of the claims and that Intel will be able to deliver with the new chip.

Year-to-date (YTD), INTC stock is down 35% and one of the worst-performing securities listed on the benchmark S&P 500 index. It might be one of the most well-known names in the industry, but it’s also one of the top overhyped tech stocks right now.

Roblox (RBLX)

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Video game maker Roblox (NYSE:RBLX) saw its share price plunge 22% after the video game developer delivered forward guidance that fell far short of Wall Street expectations. The one-day drop in the company’s share price was the largest since 2022 and brings RBLX stock to a loss of 24% on the year. Since going public in March 2021, Roblox stock has fallen 53%. Roblox did manage to report strong first-quarter financial results.

The company behind the popular online video game platform posted a Q1 loss of 43 cents, which beat a loss of 53 cents expected on Wall Street. Revenue totaled $923.8 million, up 19% from a year earlier and above analyst estimates of $919 million. But the forward guidance sank the stock. Roblox said it expects revenue of $870 million to $900 million in the current second quarter, below analyst calls for $929 million.

At an investor day last year, Roblox’s management team said they planned to deliver 20% revenue growth over the next few years. Those growth projections now seem in doubt.

Palo Alto Networks (PANW)

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Disappointing earnings are becoming a pattern at cybersecurity firm Palo Alto Networks (NASDAQ:PANW). The company’s share price just fell 8% after it yet again reported quarterly billings that missed Wall Street targets. Specifically, Palo Alto Networks’ billings for the year’s first three months came in at $2.33 billion, just missing analysts’ average estimate of $2.34 billion. While the latest print was not as bad as the previous one that really torpedoed PANW stock, it wasn’t the comeback investors wanted.

Analysts and investors see the disappointing billings as a sign of reduced corporate spending on cybersecurity solutions, creating near-term headwinds for Palo Alto Networks. Corporate America is spending less on cybersecurity as firms struggle with inflation and an uncertain economic outlook, said Palo Alto executives. For the entire year, the company expects billings of $10.13 billion to $10.18 billion. That guidance is slightly lower than a previous range of $10.1 billion to $10.2 billion.

PANW stock is up 7.5% on the year but trading 18% below its 52-week high and trailing rival cybersecurity firms.

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.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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