The trade in artificial intelligence (AI) is starting to get frothy. So far in 2024, the VanEck Semiconductor ETF (NASDAQ:SMH) that is comprised of all the major chipmakers involved in AI is up 20% versus a 6% gain in the benchmark S&P 500 index. Many stocks that are associated with AI have seen their share prices more than double in the last 12 months. The huge gains have some analysts beginning to talk about a bubble forming in AI stocks, one that will eventually pop. Some AI stocks are already flashing “sell” signals, either due to poor performance and outlook or because their share prices have risen so high that a pullback looks inevitable. In such an environment, investors should proceed with caution. Here are three AI stocks to sell in February 2024.
Arm Holdings (ARM)
Anyone with a stake in Arm Holdings (NASDAQ:ARM) may want to take some profits now before the share price inevitably pulls back. After all, any time a stock rises 50% in one day, it is probably best to take some money off the table. ARM stock shocked both analysts and investors when it rocketed higher following a better-than-expected earnings print. Since Feb. 7, the shares have risen 60%, defying both gravity and market expectations.
The move upward comes after the chip designer announced earnings per share (EPS) of 29 cents compared to the 25 cents Wall Street expected. Revenue in Arm’s fiscal third quarter came in at $824 million versus the $761 million that was forecast. Arm’s chips are used in nearly every smartphone and many computers. Importantly, the company said that it is seeing growing demand for the chips due to AI. That was enough to send ARM stock into orbit.
Intel (INTC)
Another chip stock heavily involved in AI to sell in February is Intel (NASDAQ:INTC). This chipmaker looks like a bad bet after posting a weak financial outlook and announcing it is delaying construction on an important new manufacturing plant. Intel managed to deliver a fourth-quarter 2023 earnings beat on both the top and bottom lines but offered soft guidance that calls for current Q1 earnings of 13 cents on $13.20 billion in revenue. Analysts expected earnings of 33 cents on sales of $14.15 billion.
A few days after the lackluster guide, Intel announced it was delaying the construction of a new $20 billion microchip and semiconductor manufacturing plant in Ohio. The company said the plant’s construction is being put off due to weak market demand and because it is having trouble securing grant money. Intel had previously expected the Ohio plant to be up and running in 2025. Construction has now been pushed back to late 2026. It all adds up to poor sentiment regarding Intel and its stock.
INTC stock is now down 10% on the year, bringing its five-year decline to 16%.
Super Micro Computer (SMCI)
Perhaps the only AI stock to outdo Arm Holdings is Super Micro Computer (NASDAQ:SMCI). Barely six weeks into the year, and SMCI stock is up 160%. In the last 12 months, the share price has gained 718%. The company makes high-performance, high-efficiency servers used in AI as well as cloud computing and 5G wireless networks. The stock has run so far so fast that it looks in danger of coming off the rails. Many people are now referring to Super Micro Computer as a meme stock.
SMCI stock took off a year ago after the company inked an important partnership with AI microchip king Nvidia (NASDAQ:NVDA), and have been running hot since. The shares got supercharged at the start of this year when management issued preliminary financial results that were much better than anticipated. Strong forward guidance delivered at the end of January added further rocket fuel to the share price. While the run has been impressive, investors who buy SMCI stock now could end up buying the top.
On the date of publication, Joel Baglole held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
