In just a few days, we'll turn the page on what's been another phenomenal year for Wall Street. As of the closing bell on Dec. 24, the iconic Dow Jones Industrial Average, broad-based S&P 500, and innovation-inspired Nasdaq Composite have respectively gained 15%, 27%, and 33% for the year.
While a confluence of factors, including the rise of artificial intelligence (AI) and Donald Trump's November victory, is responsible for lifting the broader market, history also reminds us that stocks don't move up in a straight line for extended periods.
As we prepare to step into a new year, here are five seemingly unstoppable stocks that I'd ring the register on and sell right now.
Image source: Getty Images.
The first high-flying stock that investors would be wise to consider selling right now is AI-driven data-mining specialist Palantir Technologies(NASDAQ: PLTR), whose shares have gained 380% year-to-date, and more than 1,200% on a trailing-two-year basis.
There are certainly reasons for investors to be excited about Palantir's future. For one, its Gotham and Foundry platforms lack large-scale competition. Companies that have sustainable moats tend to be worthy of a valuation premium. Additionally, Palantir has successfully shifted to recurring profitability, which demonstrates that its operating model works.
Nevertheless, there's cause to believe Palantir's parabolic climb will soon come to an abrupt end.
One issue for Palantir is that its profit-driving Gotham platform, which gathers data and helps plan/execute missions for federal governments, has an addressable market ceiling. Since this AI-driven platform can only be used by the U.S. and its immediate allies, there's only so much long-term runway for Gotham to push Palantir higher.
Secondly Palantir's profits aren't all they're cracked up to be. More than $142 million of the company's nearly $391 million in net income through the first nine months of 2024 can be traced interest income earned from its cash. While I'm not faulting Palantir for generating interest income on its cash, it's important to recognize that 36% of net income is derived from unsustainable/non-innovative sources.
Lastly, Palantir's valuation is an eyesore. Its shares are valued at 75 times trailing-12-month sales, which is well above a level consistent with other market leaders that have previously been in a bubble.
Another unstoppable stock that I'd consider cashing in some or all of your chips is AI colossus Nvidia(NASDAQ: NVDA), which has tacked on close to $3.1 trillion in market value since the start of 2023.
Like Palantir, there are well-defined reasons for Nvidia's outperformance. Namely, its graphics processing units (GPUs) are the undisputed top choice for businesses overseeing AI-accelerated data centers. No company is particularly close to matching the computing capabilities of Nvidia's chips, which, along with AI-GPU scarcity, has afforded this AI kingpin substantial GPU pricing power.
However, history has a flawless track record of putting market leaders of next-big-thing innovations in their place, and I don't anticipate artificial intelligence being the exception. Since the mid-1990s, every game-changing innovation has worked its way through an early stage bubble-bursting event, which signals that investors consistently overestimate the early stage adoption and/or utility of new innovations. If the AI bubble bursts, no company would be hit harder than Nvidia.
Competition is also picking up from all angles. On top of Advanced Micro Devices ramping output of its Insight MI300X chips and introducing its next-generation MI325X GPU, many of Nvidia's top customers by net sales are developing their own AI chips. Even though these chips won't have the computing capabilities of Nvidia's H100 or Blackwell GPUs, they'll be notably cheaper and easily accessible. In short, it could cause Nvidia to lose out on valuable data center space.
Insiders are providing a catalyst for investors to ring the register, too. It's been four years since any board member or executive has purchased shares of Nvidia on the open market.
The Model 3 is Tesla's top-selling sedan. Image source: Tesla.
North America's leading electric-vehicle (EV) manufacturer Tesla(NASDAQ: TSLA) is the third seemingly unstoppable stock I'd sell right now. Shares of the company are up 86% year-to-date, with almost the entirety of these gains coming since Election Day.
Investors have clearly been excited about CEO Elon Musk playing a key role in the incoming Trump administration. There's been some chatter that Trump may consider easing autonomous driving regulations, which may create an easier path for Tesla to launch robotaxis in the years to come.
The first issue for Tesla is that it's core profit segment -- EV production -- has taken a big hit to its margin over the last two years. Musk previously noted that EV demand dictates pricing behavior. With Tesla undertaking more than a half-dozen sweeping price cuts on its fleet since the start of 2023, it signifies that competition and demand are both problematic. There's no immediate resolution to improve the company's vehicle margin.
Tesla's income quality is also a bit suspect. Through the first nine months of 2024, a little over 50% of its pre-tax income has come from unsustainable sources that include regulatory tax credits and interest income on its cash. This isn't what you'd expect from a nearly $1.5 trillion "growth" company.
While I could easily harp on Tesla's valuation relative to its lack of earnings growth in recent years, its biggest issue might be its CEO. Musk has a terrible habit of overpromising new innovations and failing to deliver. If these unfulfilled promises were backed out of Tesla's valuation, the company's share price would probably crater.
The fourth steadily rising stock that I'd advocate investors sell right now is Wall Street's largest publicly traded company by market cap, Apple(NASDAQ: AAPL), which is less than $100 billion away from cresting the $4 trillion valuation mark.
Apple's gains in 2024 have primarily been the result of the launch of Apple Intelligence. This is the model that incorporates AI-driven tools into iPhone, Mac, and iPad to help users rapidly process text and generate information. Apple's entrance into the AI space has made it popular in the eyes of investors, once again.
My concern with Apple is very simple: It's no longer a growth stock. Although Services revenue, which encompasses its subscription-driven services, has been steadily growing by a double-digit percentage, it only accounts for a quarter of Apple's net sales. Meanwhile, revenue for the company's physical devices, including iPhone, have been flat or trending lower.
When Apple was growing its sales by the high single digits or low double digits, investors had a reason to pay a premium for its shares. This isn't the case any longer. Despite Apple's growth engine stalling, its price-to-earnings (P/E) ratio has doubled to north of 42 since the start of calendar year 2023 (Apple's fiscal year usually ends in late September). This makes no sense in a historically pricey stock market.
To make matters worse, the only reason Apple's earnings per share (EPS) has been climbing is because of its aggressive share repurchases. If these buybacks are removed from the equation, it would show just how pedestrian Apple's operating results have been in each of the last two years.
Last but certainly not least, I'd ring the register and sell shares of self-proclaimed "Bitcoin(CRYPTO: BTC) Treasury Company" MicroStrategy(NASDAQ: MSTR). Shares are up 468% on a year-to-date basis and more than 2,100% over the trailing-two-year period.
Investors' fascination with MicroStrategy has to do with its ongoing acquisition of Bitcoin. Though exchange-traded funds (ETFs) have made it easier than ever to buy Bitcoin, MicroStrategy is viewed as a liquid proxy to bet big on the largest digital currency in the world by market cap.
The first problem is that MicroStrategy had been leveraging convertible debt as a way to purchase Bitcoin. We've witnessed numerous examples throughout history of leverage scenarios coming back to haunt businesses. With MicroStrategy generating very little operating cash flow from its AI-enterprise analytics software segment, this is a major gamble that history suggests won't pay off.
Another issue with MicroStrategy is the inexplicable valuation premium being assigned to its Bitcoin portfolio. As of Dec. 23, MicroStrategy held 444,262 Bitcoin, or more than 2.1% of the Bitcoin that'll ever be mined. With Bitcoin valued at $98,478, at the time of this writing, it means MicroStrategy's portfolio is worth $43.75 billion. Yet MicroStrategy ended Dec. 24 with an $87.7 billion market cap. If we generously assume the software business is worth $1 billion, investors are assigning a 100% premium to its Bitcoin assets -- i.e., paying close to $197,000 per Bitcoin when they can just buy it on an exchange for $98,478.
The nail in the coffin that makes MicroStrategy a stock to sell is a Dec. 23 prospectus that seeks the authority to increase the company's share count by 10 billion to 10.33 billion shares, as well as boost the preferred share count by 1 billion to 1.005 billion shares. This level of dilution and leverage is going to end poorly for MicroStrategy's shareholders.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Bitcoin, Nvidia, Palantir Technologies, and Tesla. The Motley Fool has a disclosure policy.
