Bubble Trouble: 3 Tech Stocks to Offload Before They Pop

Stocks to sell

U.S. stocks reached a new record high immediately following Wednesday’s Fed’s interest rate decision. As a result, it exposes some potential tech stocks to sell. The technology-heavy Nasdaq saw its price-to-earnings (P/E) ratio soar over 30x, a feat not accomplished since the pandemic began. Its estimated forward valuation stands at 28.7x.

At such elevated levels, concerns about a potential market correction and tech stocks to sell are natural. Additionally, the market is driven almost exclusively by a single sector – Artificial Intelligence (AI) and related technologies. Worries are rising that the decline might be sharp. The media has resumed interviewing analysts who predicted the previous technology-driven bubble and now ultimately expect the current bubble to burst.

Another critical factor is that forecasts of a bubble burst don’t have to be accurate. Some tech stocks to sell are perhaps undergoing significant value reductions anyway. Numerous AI companies are trading at P/E ratios well into the triple digits. At the same time, economists warn that some of these are even more overvalued than companies of the dot-com era.

The highly inflated valuations represent just one of several signs that the market is experiencing a tech bubble. However, debate on Wall Street remains intense around the likelihood and timing of a severe market correction. Arguments range from potential Fed interest rate cuts to the overall economic conditions.

Still, with subsequent new highs and valuations at levels not seen in years, prudent investors may want to consider which tech stocks to sell should the bubble finally deflate.​

Semrush Holdings (SEMR)

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Semrush (NYSE:SEMR), a leading market analytics provider and AI-powered writing assistance, has experienced significant fluctuations over the past year.

While surging nearly 70% in September, prices have pulled back since and are down year to date (YTD). Despite beating analyst expectations on both the top and bottom lines, the stock price declined following its earnings release. This suggests that Semrush Holdings struggles to keep up with shareholder expectations and may experience further declines.

While short-term volatility keeps investors under duress, Semrush Holdings doesn’t pay dividends. This could be one of the catalysts for prioritizing dumping SEMR when choosing tech stocks to sell. The company appears poorly positioned to capitalize on growth opportunities, trading at a staggering 1,169 times its valuation.

Shopify (SHOP)

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Online retail platform Shopify (NYSE:SHOP) reported a profit in its most recent fiscal year. This was a turnaround from previous losses despite generating consistently higher sales since 2020.

The company has met challenges in achieving profitability, which may explain its high P/E ratio of ratio of 813x. Furthermore, SHOP doesn’t offer shareholders dividends.​

Also, analysts believe the stock price has surpassed expectations, as its value is slightly below the average forecast among brokers covering it. While its share price has increased by over 80% in the past twelve months, its latest earnings report indicated revenue growth of only 24%. Additionally, SHOP projected a similar outlook for the beginning of the current fiscal period. This could signal that the share price has advanced beyond the firm’s underlying performance and may correct.

Datadog Inc (DDOG)

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Datadog (NASDAQ:DDOG) operates in a specialized market, offering analytics tools for servers, databases, and cloud-scale applications.

Naturally, the growing demand for servers and cloud applications in AI spurs interest DDOG. However, that interest may have been exaggerated, as it is valued in the high triple digits at a P/E of 882x. Like others on the list, it does not pay a dividend, which could prioritize it as one of the tech stocks to sell ahead of other tech stocks.

Moreover, the company’s CEO Olivier Pomel sold 19,226 shares following the company’s earnings release in February. While DDOG’s share price nearly doubled over the last year, its top and bottom lines saw only 21% growth last year.

On the date of publication, Stavros Tousios did not have (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.

Stavros Tousios, MBA, is the founder and chief analyst at Markets Untold. With expertise in FX, macros, equity analysis, and investment advisory, Stavros delivers investors strategic guidance and valuable insights.

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