In this article, we will take a look at the 10 most overvalued companies according to the media.
Stocks fell on November 28 as the rally that started after latest inflation data seems to be losing steam. However, many now expect the Federal Reserve to start cutting interest rates by the end of the first half of 2024. A recent Wall Street Journal report cited data from CME Group, which shows that there is a 52% chance the Fed will decrease interest rates by at least a quarter-of-a-percentage point by its May 2024 policy meeting, up from 29% at the end of October. But the Wall Street is still far from having any certainty about what comes next. While the stock market rally in November was fueled by latest inflation data which shows prices might be cooling, new worries have risen regarding unemployment and declining consumer spending.
The Wall Street Journal report cited Rob Waldner, fixed income chief strategist at Invesco, who said that the pendulum is swinging both ways when it comes to what could happen next year.
“You’re really talking about a distribution of outcomes that range between the Fed doing nothing next year to the Fed cutting aggressively next year,” Waldner said.
Waldner reportedly believes the recession risk has increased. Some analysts are also saying the Fed might not initiate any rate cuts in 2024. The Federal Reserve has time and again reiterated that it still needs to see more evidence that the inflation is really decreasing before it could announce the end of its rate-hike spree. Some also believes the markets are getting used to the elevated interest rate environment.
Thanos Bardas, global co-head of investment-grade fixed income at Neuberger Berman, is among those who think we are in for a long period of increased rates. Bardas, according to a Wall Street Journal report, thinks consumers and businesses “have adapted to the higher-interest-rate regime.”
Methodology
Looking beyond the recession and rate cuts debate, it’s a fact that many stocks had a spectacular bull run this year, thanks to the AI-fueled rally and an overall optimism in the market that kept overlooking the emerging economic crises and inflation storm. In this article we decided to list some of the most overvalued stocks according to mainstream financial media. For this article we surveyed at least 8 mainstream financial websites and also read analyst reports and expert analysis to see what are the most overvalued stocks this year according to experts. We picked 10 stocks that frequently came up during our research. Some notable names include Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL) and NVIDIA Corporation (NASDAQ:NVDA).
Most Overvalued Companies According to the Media
10. AMC Entertainment Holdings Inc. (NYSE:AMC)
Number of Hedge Fund Holders: 18
AMC Entertainment Holdings, Inc. (NYSE:AMC) shares have plunged about 75% year to date through November 21 but some analysts believe the stock is still overvalued. For example, Citi said in September that it believes AMC Entertainment Holdings, Inc. stock was headed for below-$5 levels. Earlier this month, Citi analyst Jason Bazinet reiterated his valuation concerns and reaffirmed a Sell rating on the stock. However, the analyst revised his price target on AMC Entertainment Holdings, Inc. stock to $5.75 from $4.75.
As of the end of the second quarter of 2023, 18 hedge funds tracked by Insider Monkey reported owning stakes in AMC Entertainment Holdings, Inc., as per Insider Monkey’s database.
9. C3.ai Inc. (NYSE:AI)
Number of Hedge Fund Holders: 24
There are many companies who enjoyed huge growth in their stock prices after the AI wave of 2023 just because they could easily sell the AI buzzword. Some believe C3.ai, Inc. (NYSE:AI) was one such company since it was lucky to have “AI” in its name. C3.ai, Inc. became one of the most shorted stocks back in October. Earlier this year, Wolfe Research downgraded C3.ai, Inc. stock and said the stock could fall about 30%.
But C3.ai, Inc. has been turning the tables on its naysayers recently. Earlier this month, C3.ai, Inc. announced expansion of its “strategic collaboration agreement” with Amazon (NASDAQ:AMZN) and its cloud computing unit, Amazon Web Services. However, C3.ai, Inc. recently fell after reports suggested that company is initiating layoffs.
Kerrisdale Capital made the following comment about C3.ai, Inc. in the investor letter:
“We are short shares of C3.ai, Inc. (NYSE:AI), a $4 billion market capitalization enterprise software company that has risen from the ashes of its busted IPO based on the misconception that its self-proclaimed “AI leadership” somehow positions it to benefit from Silicon Valley’s current tech theme du jour: generative AI as represented by media obsession ChatGPT. We believe these speculative flames won’t burn bright much longer, as the realities of C3’s poor customer traction, failing sales partnerships, and financial pressures will catalyze what is likely to be a painful reality check.
This isn’t the first time C3 has sought to ride a hot investment theme. The company was originally founded as C3 Energy to develop analytics solutions for public utilities preparing for the emergence of cap-and-trade and smart grids. C3 pivoted in 2016, renaming the company C3 IoT to capitalize on that buzzy opportunity. But management’s master stroke was rebranding operations as C3.ai in 2019 and going public with the “AI” stock ticker, thus securing its place as the default artificial intelligence stock play for the undiscriminating investor despite the bulk of its business coming from relatively dated analytics models built for a very small number of utility, energy, and government customers. C3 is a minor, cash-burning consulting and services business masquerading as a software company, and its true value is a fraction of its current market capitalization…” (Click here to read the full text)
8. Arm Holdings plc (NASDAQ:ARM)
Number of Hedge Fund Holders: 35
UK-based chip design company Arm Holdings plc (NASDAQ:ARM) went public in September in an IPO that was the biggest this year. The IPO valued Arm Holdings plc (NASDAQ:ARM) at a whopping $54 billion. Radio Free Mobile Founder Richard Windsor, while talking to Yahoo Finance a couple of months ago, said that he is not buying Arm Holdings plc (NASDAQ:ARM) because of valuation concerns. He said that since he’s a value investor, when he looks at the semiconductor industry, he’s preferring companies that have better valuations like Qualcomm and Taiwan Semiconductor, among others.
In addition to ARM, some overvalued stocks according to mainstream media include Amazon.com, Inc., Apple Inc. and NVIDIA Corporation.
Even Cathie Wood, one of the most ambitious investors who does not shy away from buying stocks with extremely high valuation multiples, has said that she stayed away from Arm Holdings plc (NASDAQ:ARM) stock due to valuation concerns.
“As far as Arm, I think there might be a little bit too much emphasis on AI when it comes to Arm and maybe not enough focus on the competitive dynamics out there.. So we did not participate in that IPO, and we also compare it to the stocks in our portfolios. Arm came out, we think, from a valuation point of view on the high side, and we see within our portfolios much lower-priced names with much more exposure to AI,” Cathie Wood said while talking to CNBC.
7. Zoom Video Communications, Inc. (NASDAQ:ZM)
Number of Hedge Fund Holders: 44
Zoom Video Communications, Inc. (NASDAQ:ZM) shares have lost about 6% year to date through November 21. A blockbuster stock of the pandemic days, Zoom Video Communications, Inc. lost its relevance amid rising competition and a decrease in work from home trends as offices reopened. Many analysts and financial news media outlets believe the stock is still overvalued. They also believe Zoom Video Communications, Inc. is ripe for a merger. Jim Cramer is one such analyst. Earlier this year, Cramer said:
“They’re just not making enough money … They need a merger.”
6. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 81
Tesla, Inc. (NASDAQ:TSLA) has received the overvalued tag from many analysts and mainstream financial news media outlets. Craig Irwin, ROTH Capital Partners Senior Research Analyst, earlier this year called Tesla, Inc. an “egregiously overvalued” stock. Recently, HSBC Global started covering Tesla, Inc. stock with a “Reduce” rating and a $146 price target.
“Tesla is more than a very expensive auto company. Its ambition is to be an innovator, which underpins the valuation,” HSBC analysts said in a note.
Danny Moses of Moses Ventures said in a December 2022 program on CNBC that he was shorting Tesla, Inc. since the company’s valuation was not justified.
Baron Partners Fund made the following comment about Tesla, Inc. in its Q2 2023 investor letter:
“Many factors contributed to the strong performance of our largest Disruptive Growth position, Tesla, Inc. (NASDAQ:TSLA), in the period. Investors’ concerns regarding Tesla in 2022 continue to dissipate, and the company’s business has continued to grow materially, although at below peak margins. Tesla’s deliveries in China are recovering. The company’s newest factory in Texas has ramped production and should contribute to improved domestic sales and margins. U.S. government policies have lowered the cost to own Tesla vehicles, while also reducing the company’s battery production expenses.
We continue to believe that Tesla is only scratching the surface of its potential. We regard announced partnerships between Tesla and its competitors in the quarter as important. In early June, Tesla agreed to provide Ford Motors access to Tesla’s electric vehicle (EV) charging technology and network. Other traditional and pure EV manufacturers, including General Motors, Rivian, and Volvo, quickly followed suit. We expect additional charging partnerships to ensue. In our view, these relationships validate Tesla’s charging technology and infrastructure as superior to other standards. Consolidation around a single technology should accelerate charging infrastructure deployment, diminish the risk of Tesla’s technology becoming obsolete, and lessen a key concern of hesitant EV purchasers. EV adoption is at a tipping point. And Tesla, with its approximately 60% domestic market share of EVs, should be the most important beneficiary of this shift…” (Click here to read the full text)
Like Amazon.com, Inc., Apple Inc. and NVIDIA Corporation, Tesla is a stock highly popular among hedge funds.
5. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 102
While Netflix, Inc. (NASDAQ:NFLX) recently impressed the Wall Street with a strong earnings report for the third quarter, there’s no shortage of analysts who believe the video streaming stock is overvalued. Earlier this year, Matthew Harrigan from The Benchmark Co. said that Netflix, Inc. was “heinously overvalued” while talking to CNBC. Mike Nicolas, Oakmark portfolio manager, also said in a program on CNBC that valuation concerns caused his firm to sell Netflix, Inc. stock. Nicolas said that his firm had held Netflix, Inc. shares for “quite” some time but given the changing economic backdrop, he was finding opportunities to invest in “out of favor” businesses that trade cheap on traditional valuation metrics.
Netflix, Inc. shares have gained about 66% over the past one year.
As of the end of the second quarter of 2023, 114 hedge funds tracked by Insider Monkey reported owning stakes in Netflix, Inc..
RiverPark Advisors made the following comment about Netflix, Inc. in its Q3 2023 investor letter:
“Netflix, Inc.: NFLX was a top detractor in the quarter on weaker than expected reported and guided revenue, despite 2Q subscriber growth that was well above expectations (+5.9 million versus estimates of +2.1 million). The company’s subscriber growth re-accelerated following the company’s crack down on password sharing, and the rollout of the advertising supported subscriber offering known as the Ad Tier, but the average revenue per user came in below expectations and is expected to remain muted in the near term. NFLX reiterated expectations for full year 2023 operating margins of 18-20%, and guided free cash flow to at least $5 billion, up from prior guidance of $3.5 billion. Despite the positive momentum in the company’s business, market participants took comments from management at a recent conference to mean revenue growth may be slower in the coming years than expected. This was not our interpretation of these comments.
In fact, the recent re-acceleration of subscriber growth, plus price increases on premium memberships and a stabilization of content investments, should position the company for low double digit annual revenue growth over the next few years while driving improved operating margin to more than 25% (revenue grew 3% for 2Q23 and operating margin was 22.3%, up from 13% in 2019). We also believe that the stabilization of content spend should allow the company to continue to scale its FCF.”
4. Salesforce, Inc. (NYSE:CRM)
Number of Hedge Fund Holders: 122
Salesforce, Inc. (NYSE:CRM) has enjoyed huge gains this year thanks to the AI-fueled rally that helped many tech stocks which managed to sell the AI buzzword to investors. Salesforce, Inc. was quick to announce AI-based features integration with its CRM platforms. Salesforce, Inc. shares have gained about 67% over the past one year. Salesforce, Inc.’s PE ratio is 140 as of November 21. Piper Sandler in October sounded concerns around a few enterprise software stocks based on what it believes are overly optimistic growth estimates. Salesforce, Inc. was one of the stocks the firm downgraded.
“While we are encouraged that [software] sector valuations and growth could be nearing a bottom, we have less confidence in acceleration potential,” analyst Piper Sandler’s Brent Bracelin wrote in an investor note.
As of the end of the second quarter of 2023, 122 hedge funds reported owning stakes in Salesforce, Inc., as per Insider Monkey’s database of elite hedge funds.
Harding Loevner Global Equity Strategy made the following comment about Salesforce, Inc. in its Q2 2023 investor letter:
“Salesforce, Inc. (NYSE:CRM), a company we’ve owned since 2019, recently added ChatGPT-like capabilities onto its existing Al module, Einstein, to support its internal sales efforts and customer-facing software. For example, Einstein GPT can help generate marketing emails tailored to specific clients by using Salesforce’s customer database and past email correspondence to learn the most effective approach for each client. Einstein GPT is also different from off-the-shelf LLMS in three important ways: It keeps personal identifiable information private and secure, compared with external tools that retain anything a user enters. It employs the latest data in Salesforce’s system, as opposed to the sometimes-stale public data that train generic models. And generative Al capabilities can be integrated with other Salesforce offerings; the company has already introduced Slack GPT and Tableau GPT, Al-equipped versions of its workplace collaboration and analytics tools.”
3. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 134
Many analysts have been saying that Apple Inc. is an overvalued stock. Most of their concerns stem from Apple Inc.’s huge reliance on iPhone. Apple Inc. is not a lead runner in the AI race while other companies like Alphabet, Microsoft and Meta Platforms have been planning major AI moves for the short and long term. Dan Niles, Satori Fund founder, recently said in a program on CNBC that he’s short Apple Inc. because foreign currency headwinds will create problems for the company since about 57% of its revenue comes outside of the US. He also talked about the overheating issue with the iPhone.
Niles said that Apple Inc. has been posting revenue declines on a YoY basis for the past several quarters and the stock is trading on a high multiple which creates risks.
RiverPark Advisors made the following comment about Apple Inc. in its Q3 2023 investor letter:
“Apple Inc. (NASDAQ:AAPL): Apple shares were a top detractor in the quarter following reports of the Chinese government banning iPhone use by government employees. Additionally, while the iPhone 15 rollout went generally as expected, the market was underwhelmed by the upgrades in the new phone. Despite these overhangs, early reports from the supply chain seem to indicate demand for the new phone is in line with or better than investor expectations. In August, the company reported a broadly in-line fiscal 3Q23 with $82 billion of revenue and $24 billion of free cash flow. High margin Services Revenue continues to grow faster than the overall business leading to gross and operating margin expansion.
With an installed base of 2 billion active devices and significant growth of the company’s recurring revenue Services segment (now 18% of revenue), we believe that Apple remains one of the most innovative, best positioned and most profitable companies in the mobile technology industry.”
2. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 180
NVIDIA Corporation has been one of the biggest winners of the AI-led rally in the stock markets, given the huge demand for chips made by Nvidia that are used in powering AI software systems like ChatGPT. But there are a number of analysts who believe NVIDIA Corporation is now overvalued based on overly optimistic expectations. After all, giants like AMD are working to quickly catch up with NVIDIA Corporation in the AI semiconductor industry. Microsoft recently debuted its own chips for AI systems. Recent reports also suggest that Sam Altman was working on raising billions of dollars for AI-focused chips venture before he was ousted by OpenAI.
O’keefe Stevens Advisory made the following comment about NVIDIA Corporation in its Q3 2023 investor letter:
“This quarter, we actively reduced our position in our favorite company, NVIDIA Corporation (NASDAQ:NVDA). Over the past several years, I have consistently noted the concentration of the top 5 holdings in our portfolio, with NVDA comprising 26% of the last quarter’s 40%. The business, management, and outlook are nothing short of excellent. The business has a dominant market share in a rapidly growing market with competition seemingly years behind, though, fighting hard to gain share. Gross margin is expected to exceed 70% in 2024 and expand in 2025, reflecting the premium customers pay for their advanced technology. Revenue growth of 30%+ on a $50B base and a return on equity over 50%. If this isn’t the best business in the world currently, certainly it is in the top 5.
Jensen is the reason we held onto the stock despite our unease about the valuation. Jensen came to the U.S. from Thailand and was sent to a boarding school in rural Kentucky for troubled youth by his aunt and uncle, who mistook it for a prep school. When buying an ownership stake in the business, we must ask ourselves who we partner with. Are they honest? Capable? Aligned?
Honest: Listening to Jensen (while promotional) is like a breadth of fresh air. He tells you how it is. When the business looked like it was headed for failure in 2009, Jensen reduced his salary to $1….” (Click here to read the full text)
1. Amazon.com, Inc. (NASDAQ:AMZN)
Number of Hedge Fund Holders: 286
Amazon.com, Inc. is one of the most overvalued stocks according to many analysts and mainstream financial news media websites. Amazon shares have gained about 58% over the past one year. Amazon.com, Inc.’s PE ratio stands at about 76.29 as of November 21. Amazon.com, Inc. bears believe the company’s core ecommerce business is facing several challenges, including rising competition, macroeconomic headwinds, declining discretionary spending and market saturation. Analysts also believe since Amazon.com, Inc.’s ads business is directly linked to its ecommerce platform sales and engagement, any weakness in its core business would directly affect other segments. Amazon.com, Inc.’s Cloud business cloud also face further slowdown amid an overall lackluster growth in the industry.
But there’s no shortage of analysts who believe Nvidia has more room to run. Earlier this month, Barclays analyst Blayne Curtis said that Nvidia stock has more upside. He’s bullish on Nvidia’s H100 GPUs.
Here is what Polen Global Growth has to say about Amazon.com, Inc. in its Q3 2023 investor letter:
“Amazon continues to showcase it’s place as one of the most competitively advantaged companies in the world. The company has made significant progress in managing costs and better leveraging existing capacity, driving a strong recovery in its profitability. We think there’s additional room for improvement.
AWS growth seems to be stabilizing even while management continues to work with clients to optimize their infrastructure spend. Roughly 90% of global IT spending remains on premise. We believe this will eventually flip, with most IT spending ultimately moving to the cloud over time. We think AWS will be a significant beneficiary of this transition.
Further, our investment case on company profitability driven by AWS and advertising continues to unfold, delivering nearly $8 billion in free cash flow over the trailing twelve months and a net margin of 5%. We expect both to move higher with the mix shift of more profitable businesses growing fastest continuing to take effect.
At Amazon’s current price, we believe the company is well positioned to deliver a mid-teens or higher total shareholder return for our clients over the next five plus years without a Herculean effort from the business. It simply needs to continue executing on current businesses and growing into the capacity it built during and immediately after the pandemic.”
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This article is originally published at Insider Monkey.
