Tech Stocks to Sell as Market Darlings Lose Steam

The technology sector continues to drive the stock market higher in 2024, with stocks like Nvidia and Microstrategy outpacing the gains of the market as a whole. However, not all tech stocks deserve the support they’ve received, and investors should consider selling certain companies that have run their course.

One such company is Carvana, an online used car dealer that surprised everyone with a miraculous recovery. Despite expectations of bankruptcy, Carvana has rallied 2,200% over the last 18 months and doubled in value this year. However, its recent record first-quarter profit of $49 million was largely due to a one-off gain related to adjustments to the fair value of warrants to acquire AI-driven auto insurer Root. Without this adjustment, Carvana would have reported losses again, albeit narrower ones than last year. Additionally, Carvana still carries a significant debt burden of $5.5 billion, and its stock is trading at an inflated valuation of 44 times earnings. Therefore, Carvana is considered one of the tech stocks to sell.

Another tech stock to consider selling is Reddit, the social media site that went public in March. While its stock has seen a 20% increase since its IPO, it has also lost all the gains it made after announcing a partnership with ChatGPT owner OpenAI. Reddit’s continuous spending on marketing, which accounts for nearly a quarter of its revenue, raises concerns. Although it experienced a 37% increase in daily active uniques, a significant portion of these users may be related to its IPO. Furthermore, a large number of users do not log in, hindering engagement and growth. Investors should wait for the second-quarter report to assess Reddit’s trajectory before making any decisions.

C3.ai, an enterprise AI platform, is another tech stock that has failed to capitalize on the AI boom. Despite reporting a 16% increase in revenue to $310 million for the full fiscal year, its losses widened to $280 million. The company expects adjusted operating losses of $95 million to $125 million, indicating a delay in achieving profitability. Additionally, while C3.ai closed 191 agreements with customers, 123 of these were pilots, suggesting a slower rate of growth in new contract wins. Given the delayed profitability and sluggish customer growth, C3.ai is considered a tech stock to sell.