In this article, we discuss 5 tech stocks to avoid until 2024. If you want to see more stocks in this selection, check out “Bear Market Rally”: 10 Tech Stocks to Avoid Until 2024.
5. DocuSign, Inc. (NASDAQ:DOCU)
Number of Hedge Fund Holders: 45
DocuSign, Inc. (NASDAQ:DOCU) is a California-based company that provides electronic signature software in the United States and internationally. The stock has shed over 55% of its value year to date as of August 9. Piper Sandler analyst Rob Owens on July 21 downgraded DocuSign, Inc. (NASDAQ:DOCU) to Underweight from Neutral with a price target of $54, down from $65. The company’s risk profile remains challenging amid the CEO transition, ongoing execution challenges, quick employee turnover, and the “deteriorating” macro environment, said the analyst. He sees a challenging backdrop for possible revenue reacceleration in the short-term and thinks a core upside driver would be a potential takeout. The analyst told investors that they “shouldn’t hold out for takeout potential alone”.
According to Insider Monkey’s data, 45 hedge funds were bullish on DocuSign, Inc. (NASDAQ:DOCU) at the end of Q1 2022, down from 49 funds in the last quarter. Ken Fisher’s Fisher Asset Management featured as the biggest stakeholder of the company, with 4.6 million shares worth about $497 million.
Here is what Cooper Investors Rowan Street Capital has to say about DocuSign, Inc. (NASDAQ:DOCU) in its Q1 2022 investor letter:
“The beauty of the public markets is that if you can be patient, there is a good chance the volatility of the marketplace will give you the chance to own companies on your watch list. The stock prices of our 3 new positions (please refer to charts below) have fluctuated from 100-350% over the past 12 months (when comparing 52-week high by 52-week low). Certainly, the underlying value of a business doesn’t fluctuate that much on an annual basis, so the public markets are a fantastic arena to buy businesses if you can sit still without growing tired of sitting still.
We have been following Docusign (NASDAQ:DOCU) since its IPO in 2018. Its stratospheric valuations over the past few years have kept us admiring this company from the sidelines. We took advantage of the recent drastic drop in stock price to build a core position for the fund.”
4. Snap Inc. (NYSE:SNAP)
Number of Hedge Fund Holders: 54
Snap Inc. (NYSE:SNAP) is a California-based camera and social media company. Snap Inc. (NYSE:SNAP) stock has lost about 78% in value year to date as of August 9, and it is one of the most hammered social media stocks on the market. On July 21, the company reported its Q2 results, posting a GAAP loss per share of $0.26 and a revenue of $1.11 billion, falling short of Wall Street consensus by $0.05 and $23.58 million, respectively. The Q3 guidance also fell flat, as the management noted that user momentum is continuing but revenue is “approximately flat” year-over-year.
On July 25, Argus analyst Jim Kelleher downgraded Snap Inc. (NYSE:SNAP) to Hold from Buy without a price target after the company’s Q2 results. The analyst sees signs of soft advertising spending “amid still-high costs”. He said that weakening digital ad-spending patterns, combined with changes to ad tracking on Apple iOS have led to the downgrade. Similarly, on July 25, MoffettNathanson analyst Michael Nathanson downgraded Snap Inc. (NYSE:SNAP) to Market Perform from Outperform with a price target of $9, down from $23, in light of the company’s Q2 report. The analyst’s note to investors was titled “vote of no confidence”.
According to Insider Monkey’s data, 54 hedge funds were long Snap Inc. (NYSE:SNAP) at the end of Q1 2022, compared to 55 funds in the last quarter. Stephen Mandel’s Lone Pine Capital held the leading stake in the company, comprising 18.4 million shares worth $664.4 million.
Here is what Baron Opportunity Fund has to say about Snap Inc. (NYSE:SNAP) in its Q4 2021 investor letter:
“Snap Inc. is the leading social network among teens and young adults in North America and a growing number of overseas markets, including Western Europe and India. Shares fell this quarter on a greater-than anticipated impact from Apple’s new privacy changes for iOS mobile devices. These changes made it more difficult for Snapchat to measure the effectiveness of ads shown on its platform. We believe this is a near-term, industry-wide issue for which Snap is already developing a solution. Longer term, we continue to view Snap favorably as the company sustains its rapid pace of product innovation and expands its premium partnerships with advertisers.”
3. Twitter, Inc. (NYSE:TWTR)
Number of Hedge Fund Holders: 68
Twitter, Inc. (NYSE:TWTR) is a California-based social media company. Twitter, Inc. (NYSE:TWTR) has been in hot water since Elon Musk said that he would purchase the company, only to back out of the deal later, citing Twitter, Inc. (NYSE:TWTR)’s lack of transparency about the bot accounts on the social media platform. Since then, Twitter, Inc. (NYSE:TWTR) has taken Musk to court, and the litigation also revealed several internal issues at the company as many employees spoke out. It is a wise idea to avoid this tech stock until legal proceedings end and the company’s future plans are certain.
On August 5, Susquehanna analyst Shyam Patil downgraded Twitter, Inc. (NYSE:TWTR) to Neutral from Positive, slashing the price target from $50 to $45. The analyst cited the “associated uncertainty and disruption” regarding the pending takeover by Elon Musk for the downgrade. Additionally, Twitter, Inc. (NYSE:TWTR)’s Q2 financial results provide limited visibility into business trends, the analyst told investors.
Among the hedge funds tracked by Insider Monkey, Paul Singer’s Elliott Management is the biggest Twitter, Inc. (NYSE:TWTR) stakeholder, with 10 million shares worth about $387 million. Overall, 68 hedge funds were bullish on the stock at the end of March 2022, down from 83 funds in the last quarter.
Here is what RGA Investment Advisors has to say about Twitter, Inc. (NYSE:TWTR) in its Q4 2021 investor letter:
“Twitter had an eventful quarter. The company started the year seemingly ready to fly for the first time as a public company. Consensus estimates for 2023 revenue started the year at barely north of $5b and by the end of the year were just shy of $7.5b, a target the company offered at their first investor day in years. Unfortunately, it was a second target offered at that same investor day that did them in: 330 million mDAUs by the end of 2023. Typically stocks follow revenues, but mDAUs became the noose around the stock, and perhaps even Jack Dorsey’s tenure as CEO. With each quarter reported following the investor day, the mDAU target became increasingly harder to achieve as the user base grew below the run-rate required to get there in straight-line fashion. Although the company stated this would happen, investors were left wondering how an already lofty target could be achieved with a higher hurdle. Importantly, however, the revenue target continued to look increasingly achievable with each passing quarter. Taking a step back, people came into the year convinced Twitter had a monetization problem, but exited the year focused on their user base growth.
As always, the Street is incredibly myopic about the company, but we are far more sanguine. The user base will exit the year growing at what we thought was a more appropriate quarterly run-rate (6-7 million quarterly new users), consistent with the acceleration that began before the COVID-induced bump in Q1-Q2 of 2020. As it stands today, Twitter is trading near its lowest multiples as a public company (on both EV/S at ~4.5x forward and EV/EBITDA at ~18x), at a time when it will report its fastest growth rate as a public company and over the next two years is expected to report two of its next three fastest growing years. Altogether, the years 2021-2023 should be the company’s fastest three-year CAGR period by a lot, meanwhile the last time Twitter traded at multiples this low was in 2017 when revenue actually contracted 3.41% during the year. There is little that can actually justify such a disconnect where the company’s growth is as swift as ever, but its multiple is consistent with negative growth periods. Twitter remains drastically under monetized, has a long runway of opportunity ahead on both the user growth side and monetization, and has optionality in pursuing subscription, data and/or service extensions of the core offering.”
2. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Holders: 78
Micron Technology, Inc. (NASDAQ:MU) designs and manufactures memory and storage products worldwide, operating through four segments – Compute and Networking Business Unit, Mobile Business Unit, Storage Business Unit, and Embedded Business Unit. As of August 9, the stock has lost about 38% in value year to date. The NASDAQ 100 underperformed after the company recently warned of the falling demand for chips.
Piper Sandler analyst Harsh Kumar on August 9 maintained an Underweight rating on Micron Technology, Inc. (NASDAQ:MU) with a $50 price target after the company reiterated that FQ4 revenue may clock in at the low end of the revenue guidance or even below that range, while Q1 revenue and margins are forecasted to also see sequential drops. The softness in PCs and smartphones is not surprising, but the same patterns reflected in other end markets is concerning, the analyst told investors in a research note. The negative free cash flow in the first fiscal quarter is also unexpected, added the analyst.
According to Insider Monkey’s data, Micron Technology, Inc. (NASDAQ:MU) was part of 78 hedge fund portfolios at the end of Q1 2022, down from 83 funds in the previous quarter. David Goel and Paul Ferri’s Matrix Capital Management is a significant stakeholder of the company, with 4 million shares worth $311.56 million.
Here is what Hazelton Capital Partners has to say about Micron Technology, Inc. (NASDAQ:MU) in its Q3 2021 investor letter:
“It’s hard to explain how shares of Micron Technology, manufacturer of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology trades at just 8x 2022 estimated earnings. MU is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
1. Snowflake Inc. (NYSE:SNOW)
Number of Hedge Fund Holders: 81
Snowflake Inc. (NYSE:SNOW) offers a cloud-based data platform in the United States. Snowflake Inc. (NYSE:SNOW) stock has declined about 52% year to date as of August 9. Earnings growth has slowed for Snowflake Inc. (NYSE:SNOW) over the years. BTIG analyst Gray Powell downgraded Snowflake Inc. (NYSE:SNOW) to Neutral from Buy on August 2 without a price target. The analyst said his latest field surveys on Snowflake Inc. (NYSE:SNOW) “downticked,” which indicates likelihood for product revenue growth to slow in the upcoming quarters. Sequential trends for the hyperscale cloud IaaS providers declined in Q2, which is a negative signal for Snowflake Inc. (NYSE:SNOW), the analyst told investors. In recent customer checks, spending patterns with Snowflake Inc. (NYSE:SNOW) remained strong, but feedback was “not nearly as good as 6 – 12 months ago as customers are becoming increasingly concerned about a weakening economic environment,” added the analyst.
According to Insider Monkey’s Q1 data, 81 hedge funds reported owning stakes in Snowflake Inc. (NYSE:SNOW), compared to 84 funds in the last quarter. Brad Gerstner’s Altimeter Capital Management is the biggest stakeholder of the company, with 17 million shares worth $5.75 billion.
Here is what ClearBridge Aggressive Growth Strategy has to say about Snowflake Inc. (NYSE:SNOW) in its Q2 2022 investor letter:
“Snowflake operates a cloud-based data platform for small and medium-sized businesses and enterprise customers. The company is a key beneficiary of software spending moving to the cloud, as well as the increasing strategic importance of data. With the potential to address the large and growing market for data cloud, a roughly $250 billion plus opportunity by 2026, we see a long runway for growth ahead. Although the company is already profitable, we believe Snowflake still has significant room for free cash flow margin expansion.”
You can also take a look at 10 Dividend Stocks of All Time and Analyst Are Cutting Estimates on These 10 Tech Stocks.
