As certain tech stocks soar to jaw-dropping multiples, the number of analysts downgrading companies they otherwise like, due to their valuations, is mounting.
See, for example, last Friday’s downgrade of Palantir Technologies (PLTR) – Get Report by Credit Suisse. In cutting Palantir’s shares to Underperform from Neutral, analyst Brad Zelnick said the data mining/analytics software firm’s valuation had become “disconnected from fundamentals” and was 50% above what Credit Suisse saw as fair in a “blue-sky scenario.”
Or consider a Dec. 8 downgrade of business intelligence software firm-turned-Bitcoin buyer MicroStrategy (MSTR) – Get Report. Citi’s Tyler Radke, who cut shares to Sell from Neutral, observed that MicroStrategy’s market cap is now significantly above the value of its Bitcoin holdings, and that the company is seeing “significant and broad-based” insider selling.
A Wednesday downgrade of online TV service provider FuboTV (FUBO) – Get Report was more measured in tone, but was still rooted in valuation concerns. BMO analyst Daniel Salmon cut his rating to Market Perform on Fubo, which was up nearly 600% on the year going into Wednesday, currently generates a negative gross margin and competes against online TV services from the likes of YouTube, Hulu and Dish.
JPMorgan, for its part, downgraded a few high-multiple software names — Zoom Video (ZM) – Get Report, Okta (OKTA) – Get Report and Snowflake (SNOW) – Get Report — two weeks ago due to their valuations. In the cases of Zoom and Okta, the firm argued that high-multiple stocks could underperform during an economic recovery that follows the mass-distribution of COVID vaccines.
Not surprisingly, Tesla’s (TSLA) – Get Report gravity-defying surge to a $600 billion-plus market cap has also sparked some valuation-driven downgrades. Jefferies downgraded shares on Dec. 10, and so did New Street Research’s Pierre Ferragu, a long-time and prominent Tesla bull. CFRA downgraded on Dec. 18, just before Tesla was added to the S&P 500.
In addition, there has been an uptick lately in bearish calls on high-multiple tech stocks from research firms that specialize in short calls.
Since mid-November, Citron Research has made bearish calls on electric vehicle plays Nio (NIO) – Get Report, Electrameccanica Vehicles (SOLO) – Get Report and Blink Charging (BLNK) – Get Report, as well as on Palantir and DoorDash (DASH) – Get Report. Meanwhile, Hindenburg Research has made bearish calls on Kandi Technologies (KNDI) – Get Report, Loop Industries (LOOP) – Get Report and (most recently) MicroVision (MVIS) – Get Report.
Of course, in the current market environment, negative analyst calls — whether they criticize a company’s valuation, business prospects or both — often don’t do much to keep favored tech names from continuing to surge to new highs.
Though Hindenburg made its short call on MicroVision on Tuesday morning, MicroVision’s shares rose more than 60% on the day thanks to a patent grant that might be of limited value. And though MicroVision is giving back a chunk of its gains today, its shares remains up about 40% on the week.