The artificial intelligence (AI) market is beginning to froth at the mouth. The VanEck Semiconductor ETF (NASDAQ:SMH), which includes all major chipmakers involved in AI, has seen a 20% increase so far in 2024, compared to a 6% gain in the S&P 500 index. Many AI-associated stocks have seen their share prices more than double in the past year. This rapid growth has led some analysts to speculate about a potential bubble in AI stocks, which could eventually burst. Certain AI stocks are already showing signs of a “sell” signal, either due to poor performance and outlook or because their share prices have soared to such heights that a pullback seems inevitable. In such a volatile environment, investors should tread carefully. Here are three AI stocks to consider selling in February 2024.
Investors in Arm Holdings (NASDAQ:ARM) might want to consider cashing in some profits before the share price inevitably retracts. After all, when a stock surges 50% in a single day, it’s usually wise to secure some profits. ARM stock surprised analysts and investors alike when it soared following a better-than-expected earnings report. Since February 7, the shares have climbed 60%, defying both market expectations and gravity.
This upward trend followed the chip designer’s announcement of earnings per share (EPS) of 29 cents, surpassing Wall Street’s expectation of 25 cents. Arm’s fiscal third quarter saw revenues of $824 million, exceeding the forecasted $761 million. Arm’s chips are ubiquitous in smartphones and many computers. Crucially, the company reported increasing demand for its chips due to AI, a factor that propelled ARM stock skyward.
Another AI-involved chip stock to consider selling in February is Intel (NASDAQ:INTC). After revealing a weak financial outlook and announcing a delay in the construction of a crucial new manufacturing plant, this chipmaker seems like a risky bet. Despite beating fourth-quarter 2023 earnings on both the top and bottom lines, Intel provided soft guidance that predicts current Q1 earnings of 13 cents on $13.20 billion in revenue, falling short of analysts’ expectations of 33 cents on sales of $14.15 billion.
Shortly after this disappointing guidance, Intel announced a delay in the construction of a new $20 billion microchip and semiconductor manufacturing plant in Ohio. The company cited weak market demand and difficulties securing grant money as reasons for the delay. Originally, Intel expected the Ohio plant to be operational by 2025, but construction has now been postponed until late 2026. This series of events has led to negative sentiment surrounding Intel and its stock.
Intel’s stock is currently down 10% for the year, contributing to a five-year decline of 16%.
Super Micro Computer (NASDAQ:SMCI) may be the only AI stock to outperform Arm Holdings. Just six weeks into the year, SMCI stock has already risen 160%. Over the past 12 months, the share price has seen a staggering 718% increase. The company, which manufactures high-performance, high-efficiency servers used in AI, cloud computing, and 5G wireless networks, has seen its stock price skyrocket so quickly that it appears to be on the brink of derailment. Super Micro Computer is now often referred to as a meme stock.
SMCI stock began its ascent a year ago after the company formed a significant partnership with AI microchip leader Nvidia (NASDAQ:NVDA). The shares received a further boost at the beginning of this year when management released preliminary financial results that exceeded expectations. Strong forward guidance provided at the end of January added even more momentum to the share price. While the run has been impressive, investors who purchase SMCI stock now could potentially be buying at the peak.
As of the publication date, Joel Baglole held a long position in NVDA. The views expressed in this article are those of the author, subject to the InvestorPlace.com Publishing Guidelines.
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