Last Friday saw an absolute bloodbath for some of the market’s hottest AI stocks. Market darling Nvidia (NASDAQ:NVDA) nosedived 10% in a single session. Super Micro Computer (NASDAQ:SMCI) tanked more than 23% as the firm stayed quiet on its earnings pre-announcement.
Indeed, the reaction seems just a tad overdone. A missed pre-announcement seems to have been taken for a major quarterly disappointment. That’s how high expectations were for a red-hot AI data center stock that has run up triple-digit percentages in only a few months.
However, things are not looking good at all for AI plays or the rest of the tech sector. Many solid tech stocks were unfairly dragged down amid the carnage. Investors should be wary of overpaying as they seek to buy the dip on what (hopefully) will eventually become an attractive buying opportunity.
Here are three AI stocks to sell that I wouldn’t touch until they’re markedly lower. Their recent negative price action is a sell signal.
Super Micro Computer (SMCI)
Super Micro Computer stock has now shed close to 40% of its value from its peak. It used to be the hottest AI high-flyer on Wall Street just a few months ago. Now, it’s one of the fastest fallers that seems to be dragging many of the AI-centric names lower. Undoubtedly, not pre-announcing earnings is seen as a major red flag for some investors. If management isn’t eager to pre-announce, the numbers must not be so great, right?
As Super Micro keeps its lips sealed until the date of the March quarter’s release, slated for April 30, the stock will likely continue to be a stomach churner. A quarterly miss may already be priced in by the time the data center company officially reveals its numbers.
In any case, a better entry point is on the horizon as the negative momentum builds over the coming sessions. Even if Super Micro disappoints for the coming quarter, it’s worth noting that its biggest catalyst (support for Nvidia’s Blackwell chips) has yet to kick in. As such, any more big down days like last Friday may create a terrific chance to buy for those waiting to jump aboard the AI bandwagon.
Nvidia (NVDA)
Nvidia is a great company, and it’s done nothing to deserve last Friday’s painful 10% pullback. With NVDA stock finally starting to fall in sympathy with the rest of the AI pack, investors may have a chance to back CEO Jensen Huang on the latest bout of weakness. Indeed, past Nvidia stock dips have been painful to jump into but incredibly rewarding to hold, even as some of the bears yelled to sell.
Over the long term, Nvidia’s latest slide, which puts it close to bear market territory, could prove a small blip in the road. As mentioned previously, Blackwell is coming, and it could set the stage for even more blowout quarters.
However, those with limited investment horizons may find that patience may reward them with a much better entry point. Indeed, NVDA stock is no stranger to drops in excess of 50%. Between now and when the big Blackwell numbers drop, there could easily be more pain in the cards. Personally, I’m sitting on the sidelines until the dust settles a bit. Even after the latest plunge, NVDA stock is still up more than 58% year to date!
As far as I’m concerned, Mr. Market hasn’t yet priced the stock at bargain levels quite yet. Does it deserve to approach such levels?
Probably not. It’s a growth company for the ages. Market-wide negativity may be enough to drag Nvidia down regardless, however.
Arm Holdings (ARM)
Arm Holdings (NASDAQ:ARM) is another AI winner investors have been souring on of late. Shares crashed almost 17% last Friday.
With shares down more than 40% from their February 2024 highs, many investors may wonder if the IPO price ($51 per share) will be the next stop. At this pace, we may get another shot to jump aboard the ARM stock bandwagon at close to its market debut prices.
Although Arm’s long-term growth profile looks impressive, its valuation remains at nosebleed levels. At writing, the stock goes for 36.7 times price-to-sales (P/S). That kind of multiple scares me, especially at a time when AI stocks, as a whole, are seeing momentum reverse in a big way.
Further, David O’Connor, an analyst over at BNP Paribas, recently stepped forward with a major downgrade of the stock to neutral from outperform because he believes there’s “little room for [an] upside surprise” come Arm’s fast-approaching May 8 quarterly earnings report.
On the date of publication, Joey Frenette 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.