The stock market rally continues, with last week’s jobs report sparking a rebound. And just a day after a steep slide, investors may wish to become just a bit more selective.
Undoubtedly, AI is still the name of the game for many gain-hungry investors. The boom is unlikely over. Now, good economic data combines with potentially lower inflation and looming rate cuts. So, we may have an environment where it’ll be tough to stand in the way of the market’s momentum.
Even if there’s plenty of runway for the AI stocks boom to continue, the nearer-term trajectory could prove rougher. Understandably, investors look to book profits and spread bets into lower-cost names that may be next AI home run.
Let’s examine a trio of AI stocks that are too hot to buy at current prices.
Super Micro Computer (SMCI)
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Super Micro Computer (NASDAQ:SMCI) has arguably been the hottest AI stock of 2024, at least so far. Despite retreating more than 20% from its recent peak, SMCI stock remains up over 230% year to date (YTD). Indeed, the recent bear market flop is a tiny blip, even when looking at the YTD chart!
True, new Nvidia (NASDAQ:NVDA) AI chips, which SMCI is sure to adapt swiftly, act as a nice near-term catalyst. But, I’m simply not comfortable pursuing SMCI stock, given the chart’s unappetizing appeal of recent weeks.
With a potential head-and-shoulders technical formation that may very well be developing, I’m too scared to be a net buyer here and will stay glued to the sidelines. Shares remain quite frothy at 74.4 times trailing price-to-earnings (P/E).
AMD (AMD)
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Also, AMD (NASDAQ:AMD) shed around 20% of its value since peaking in early March. With more negative momentum this past month than NVDA, as well as a higher trailing P/E ratio, take a “raincheck” on AMD. And this is especially relevant if AI stocks are rocked further from here.
Indeed, AMD is a wonderful number-two AI chip titan that cannot be dismissed. With CEO Lisa Su running the show, AMD may be empowered to become even better than most Magnificent Seven companies over the long run. However, in the near term, shares may remain at high risk of a steeper pullback.
Perhaps a better entry point will present itself for patient AI investors. AMD is working hard behind the scenes to maintain (or even advance) its lead in AI acceleration and a potential AI PC boom. In short, AMD’s a great business, but the price is a higher than desirable.
Palantir (PLTR)
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Palantir (NASDAQ:PLTR) will likely perform well as the AI boom unfolds in the coming years. After the stock’s recent vertical spike, the big-data juggernaut may be at high risk of a near-term pullback. This is especially true as AI enthusiasm temporarily fades, at least until the next big breakthrough.
For long-term investors, any further weakness in PLTR stock may serve as a fantastic buying opportunity. With shares down more than 13%, the stock still doesn’t seem cheap enough. Consider that it is fresh off a six-day losing streak.
Just last week, Wall Street analyst Brian White of Monness warned Palantir stock as valuation is excessive. With shares trading at more than 23.7 times price-to-sales, White could be right indeed.
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 biedexmarkets.com.com Publishing Guidelines.
