In this article, we will take a look at the 5 most overvalued companies according to the media. To see more such companies, go directly to 10 Most Overvalued Companies According to the Media.
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. (NASDAQ:NFLX) 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. (NASDAQ:NFLX) stock. Nicolas said that his firm had held Netflix, Inc. (NASDAQ:NFLX) 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. (NASDAQ:NFLX) 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. (NASDAQ:NFLX).
RiverPark Advisors made the following comment about Netflix, Inc. (NASDAQ:NFLX) in its Q3 2023 investor letter:
“Netflix, Inc. (NASDAQ:NFLX): 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. (NYSE:CRM) was quick to announce AI-based features integration with its CRM platforms. Salesforce, Inc. (NYSE:CRM) shares have gained about 67% over the past one year. Salesforce, Inc. (NYSE:CRM)’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. (NYSE:CRM) 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. (NYSE:CRM), as per Insider Monkey’s database of elite hedge funds.
Harding Loevner Global Equity Strategy made the following comment about Salesforce, Inc. (NYSE:CRM) 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. (NASDAQ:AAPL) is an overvalued stock. Most of their concerns stem from Apple Inc. (NASDAQ:AAPL)’s huge reliance on iPhone. Apple Inc. (NASDAQ:AAPL) 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. (NASDAQ:AAPL) 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. (NASDAQ:AAPL) 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. (NASDAQ:AAPL) 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 (NASDAQ:NVDA) 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 (NASDAQ:NVDA) is now overvalued based on overly optimistic expectations. After all, giants like AMD are working to quickly catch up with NVIDIA Corporation (NASDAQ:NVDA) 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 (NASDAQ:NVDA) 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. (NASDAQ:AMZN) 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. (NASDAQ:AMZN)’s PE ratio stands at about 76.29 as of November 21. Amazon.com, Inc. (NASDAQ:AMZN) 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. (NASDAQ:AMZN)’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. (NASDAQ:AMZN)’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. (NASDAQ:AMZN) 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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