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.”
Most Overvalued Companies According to the Media
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).
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. (NYSE:AMC) 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. (NYSE:AMC) 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. (NYSE:AMC), as per Insider Monkey’s database.
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. (NYSE:AI) became one of the most shorted stocks back in October. Earlier this year, Wolfe Research downgraded C3.ai, Inc. (NYSE:AI) stock and said the stock could fall about 30%.
But C3.ai, Inc. (NYSE:AI) has been turning the tables on its naysayers recently. Earlier this month, C3.ai, Inc. (NYSE:AI) announced expansion of its "strategic collaboration agreement" with Amazon (NASDAQ:AMZN) and its cloud computing unit, Amazon Web Services. However, C3.ai, Inc. (NYSE:AI) recently fell after reports suggested that company is initiating layoffs.
Kerrisdale Capital made the following comment about C3.ai, Inc. (NYSE:AI) 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.
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. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL) and NVIDIA Corporation (NASDAQ:NVDA).
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.
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. (NASDAQ:ZM) 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. (NASDAQ:ZM) 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.”
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. (NASDAQ:TSLA) an “egregiously overvalued” stock. Recently, HSBC Global started covering Tesla, Inc. (NASDAQ:TSLA) 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. (NASDAQ:TSLA) since the company’s valuation was not justified.
Baron Partners Fund made the following comment about Tesla, Inc. (NASDAQ:TSLA) 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.
Like Amazon.com, Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL) and NVIDIA Corporation (NASDAQ:NVDA), Tesla is a stock highly popular among hedge funds.
