Technology stocks are showing some signs of life with the Nasdaq Composite up nearly 10% over the past four trading days. The renewed interest in growth stocks has been triggered by lower-than-expected inflation readings. The hope is that the Federal Reserve will begin to ease its aggressive rate-hiking campaign. However, the recent data is far from an all-clear signal for investors. The six Nasdaq stocks to sell below are companies that are likely to experience continued weakness in 2023 despite the recent rally.
After all, the negative trends that have slammed the technology sector throughout 2022 won’t disappear overnight. The Fed isn’t finished raising interest rates, even if a pivot is in the offing. Meanwhile, demand for tech products and services has fallen sharply, which has caused a round of layoffs and spending cuts that will continue to reverberate throughout the industry.
The Nasdaq stocks to sell below are in for more pain in the year ahead. However, one Nasdaq stock is on much better footing and may be set to rally into 2023 despite economic headwinds.
| MNDY | Monday.com | $107.81 |
| OKTA | Okta | $53.42 |
| TSLA | Tesla | $194.42 |
| AMD | Advanced Micro Devices | $76.37 |
| AFRM | Affirm | $17.31 |
| ENPH | Enphase Energy | $300.73 |
| MSFT | Microsoft | $241.97 |
Nasdaq Stocks to Sell: Monday.com (MNDY)
Monday.com (NASDAQ:MNDY) is a software-as-a-service company focused on project management and scheduling operations. Like many SaaS companies, MNDY stock soared to unbelievable levels, hitting an all-time high of nearly $420 per share in November 2021.
However, Monday.com has struggled to turn a profit and now faces a slowdown in growth prospects as tech industry layoffs mount. As large firms trim their workforces, it reduces the number of employees that will need project management software.
MNDY stock shot up 35% over the past week following a better-than-expected earnings report. Investors should take advantage of that pop to sell the news.
Analysts forecast the company will remain unprofitable until at least 2025. Meanwhile, revenue growth is set to slump from more than 65% this year to just 30% next year. Given the numerous headwinds MNDY faces, I expect shares will be back in the double digits soon.
Okta (OKTA)
Okta (NASDAQ:OKTA) is another SaaS company, focused on identity management software. It gives customers a wide range of solutions to manage user log-ins, multi-factor authentication, access gateways and APIs for user access, among other services.
Okta faces a similar problem to Monday.com. With the rash of tech layoffs, there are simply fewer people working at these large tech enterprises that are most likely to use Okta’s services. Every big layoff at a firm like Twitter represents a shrinking addressable market for Okta in the near term.
Over time, Okta can work through this downturn and get back to better prospects. However, despite being publicly traded since 2017, Okta has still failed to reach profitability. Instead, operating losses have been widening while operating expenses have risen sharply.
If Okta couldn’t turn a profit during the pandemic work-from-home era, you have to wonder when it will make it into the black now that a major downturn is occurring in the technology industry.
Nasdaq Stocks to Sell: Tesla (TSLA)
Tesla (NASDAQ:TSLA) CEO Elon Musk has been under an incredible amount of scrutiny lately due to all the changes at Twitter since he took over. The policy and authentication discussions make for great gossip. What’s really important to Tesla, however, is the financial implications. Musk recently warned that Twitter might even have to file for bankruptcy if the social media firm can’t reverse its recent operating losses.
This has direct implications for TSLA stock. Can Musk run Twitter, Tesla and SpaceX all at the same time? Increasingly, it’s looking like the answer is no.
On top of Twitter’s operational issues, there are financial concerns. Musk and his affiliates paid $44 billion for Twitter. In retrospect, the price seems much too high given how badly social media stocks are faring lately. Musk may end up deciding to sell more TSLA stock to help fund his other investments, including Twitter, during this rough patch.
Turning to Tesla itself, some investors might feel it is cheap after its 45% year-to-date decline to around $194. However, this is hardly a panic-sale price. Shares are still up more than 825% over the past five years and currently selling for 35 times forward earnings even as the economy slows with a possible recession on the horizon.
TSLA stock is overvalued, Elon Musk is distracted and economic headwinds are building. Put the EV maker on your list of Nasdaq stocks to sell.
Advanced Micro Devices (AMD)
The semiconductor boom has turned into a full-on bust recently. Supply chains have started catching up again while consumer demand has dropped. Seemingly, folks bought all the electronics they’d been eyeing during the stay-at-home days of the pandemic and that brought forward a lot of consumption that would have otherwise happened in 2022.
To that point, research firm Gartner reported that worldwide PC sales dropped nearly 20% in the third quarter compared to the same period last year. Advanced Micro Devices (NASDAQ:AMD) had been taking market share in the computing chip market. However, it’s hard to improve profitability when the overall market is shrinking that quickly.
AMD stock trades at 22 times this year’s earnings estimate and 21 times forecasted 2023 earnings. If the company meets estimates, AMD stock might be a reasonable value at today’s levels. However, I believe analyst expectations are much too high given the trajectory of sales in the computing industry. I expect a significant decline in AMD’s profitability next year, which would make shares more of a value trap than a bargain at today’s prices.
Nasdaq Stocks to Sell: Affirm (AFRM)
Affirm (NASDAQ:AFRM) is a fintech company seeking to disrupt the payments market. It is one of several companies that have sought to popularize buy now, pay later technology. BNPL gives consumers the ability to pay off a purchase over a series of months rather than at the time of the transaction. In theory, BNPL offers advantages to consumers versus credit cards, such as potentially lower interest rates and friendlier customer service.
However, there has been some skepticism as to how revolutionary BNPL actually is. Similar services have existed in some foreign markets for many years. And, at the end of the day, Affirm and other BNPL vendors need to make money charging fees or interest in some regard. Take away the glossy language around democratizing finance and this is a lending operation trying to beat credit card companies and banks at a challenging game.
And, so far, results have been underwhelming. Affirm’s recent quarterly results were a disaster. The company’s GAAP operating losses continued to mount, rising to $287 million for its fiscal first quarter. This was worse than the $277 million loss in the previous quarter and the $166 million it lost in the same quarter of last year. Transaction growth also slowed down, suggesting Affirm can’t scale its way out of its massive losses. Throw in a looming recession, and Affirm may start taking big credit losses on top of its operational red ink.
AFRM stock sunk to an all-time low on its dour quarterly earnings before the recent rebound. Traders should cash in on said rebound before shares slide into the single digits.
Nasdaq Stocks to Sell: Enphase Energy (ENPH)
Unlike most of the other Nasdaq stocks to sell, Enphase Energy (NASDAQ:ENPH) has been a huge winner lately. In fact, the solar technology firm has seen its share price rise 64% year to date. However, ENPH stock may be getting too close to the sun.
Enphase is best known for its microinverters, which help convert energy within solar modules. Enphase also offers software and systems to help manage and track energy production and usage, as well as other products for the industry such as AC battery storage units.
Enphase has been exceptionally successful, growing revenues from $286 million in 2017 to an estimated $2.3 billion this year. However, profitability has been less steady, with shares still going for more than 60 times forward earnings.
Meanwhile, the solar industry may see its tailwinds fade. The Biden administration already approved major subsidies for solar, causing that catalyst to have played out already. And with the Republicans on the verge of taking back the House of Representatives, look for the solar subsidies to slow down.
Enphase has done a fine job operating its business, but the price of ENPH stock has run far ahead of its underlying fundamentals.
Nasdaq Stock To Buy: Microsoft (MSFT)
Of the large-cap tech companies, Microsoft (NASDAQ:MSFT) is best-positioned to overcome the current headwinds. This is because it is among the most mission-critical pieces of software out there. Companies simply can’t function without the Windows/Office/Teams stack they are used to. Microsoft would be the last bill that a struggling startup would stop paying before turning off the lights.
On top of that, Microsoft’s Azure continues to steadily gain market share in the cloud business. This gives Microsoft an even wider moat as more and more companies rely on it for not just Windows and Office but also hosting, data storage, analytics and the like.
The sneaky benefit to this is that Microsoft will win more business by default in the coming quarters. Other smaller SaaS companies are slashing their ad budgets and firing sales teams given the downturn. Microsoft will win more business simply due to its large size and well-known brand as smaller rivals exit the playing field. During industry downturns, the large stable company is king. Microsoft is that titan that will be unfazed by current industry problems.
On the date of publication, Ian Bezek held no positions in any of the aforementioned securities. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.