The stock market rally that began in earnest last spring is starting to get frothy. Some stocks are now making parabolic moves and rising at what appear to be unsustainable rates. Speculation in the market appears to have returned, with cryptocurrencies also rising sharply in recent weeks and now at their highest levels in two years. Stansberry Research commented that “animal spirits” appear to have gripped the stock market, noting that many securities are now rising or falling by 5% or more in a single trading session. Is this the start of an overheated market and bubble or the result of random speculation among investors? Time will tell. In the meantime, investors would be rid themselves of these three over-hyped stocks to sell before it’s too late.
Arm Holdings (ARM)
The stock of British microchip designer Arm Holdings (NASDAQ:ARM) is bouncing around like a yo-yo. Yes, ARM stock doubled in four trading sessions after it reported blowout financial results on February 7. But the company’s share price fell 20% on February 13 after the January inflation reading came in hotter than expected, sending the broader market down nearly 2%. The big swings in Arm Holdings’ share price are reminiscent of meme stocks and are being driven entirely by the hype surrounding AI.
ARM stock has nearly tripled since the company’s initial public offering (IPO) last September and now has a market capitalization of $153 billion. The company’s share price went into overdrive after management highlighted soaring AI demand for the microchips it designs during their Q4 earnings call. While the furious rally of the past week is no doubt thrilling current shareholders, there are red lights flashing with this stock. Arm’s daily trading volume now exceeds 100 million shares, more than 10 times the average.
Also, the 180-day post-IPO lockup period for ARM stock expires in March, allowing insiders to sell their shares and take profits. This could result in a big downturn in the share price, making Arm an over-hyped stock to sell before it’s too late.
Super Micro Computer (SMCI)
Even more over-hyped than Arm Holdings is Super Micro Computer (NASDAQ:SMCI). Six weeks into 2024, and SMCI stock is now up 200% on the year. In the last 12 months, the company’s share price has increased 825%. Like Arm, the meteoric rise in Super Micro Computer’s stock is being driven entirely by the hype that’s enveloping AI. If investors need a sign that investor excitement over AI has reached a fevered pitch, they need only look at the movement in SMCI stock.
Super Micro Computer’s stock has also gotten supercharged due to its relationship with Nvidia (NASDAQ:NVDA), and the fact that Nvidia is using Super Micro’s high-efficiency servers. Demand for the servers is so great, that Super Micro Computer pre-announced its earnings in January. The company’s actual print for the final quarter of last year came in much better-than-expected, sending the stock soaring. But at this point, SMCI stock looks in serious danger of a correction.
MicroStrategy (MSTR)
On the day of this writing, the share price of MicroStrategy (NASDAQ:MSTR) is up 12%. The business intelligence company led by Michael Saylor is seeing its stock rise in tandem with another overhyped asset, Bitcoin (BTC-USD). While Arm and Super Micro are riding the AI hype train, MicroStrategy has hitched its wagon to cryptocurrencies, BTC in particular. MicroStrategy recently bought $37 million more of Bitcoin, bringing the company’s holdings to 190,000 BTC worth $9.69 billion.
MicroStrategy is now one of the world’s largest holders of Bitcoin, and the company has become as well known for its crypto holdings as its software and cloud-computing technologies. With Bitcoin’s price at $51,500, its highest level in two years, MSTR stock is going along for the ride. As Bitcoin’s market capitalization regains $1 trillion, MSTR stock has risen 185% over the last 12 months. The company’s share price is up 445% over the last five years. The question is: what happens when Bitcoin’s price falls?
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.