This week witnessed significant declines in the stocks of IonQ, Applovin, and BigBear.ai.
This week witnessed significant declines in the stocks of IonQ, Applovin, and BigBear.ai.
Certainly, I can rephrase the given text for you. Here it goes:
Investors are reevaluating some of the market's top performers this week, questioning if their growth has been too rapid in 2024. S&P Global Market Intelligence reports that shares of IonQ plunged as much as 22.3%, AppLovin dropped 20%, and BigBear.ai slipped 28.4%. As of Friday at 2:30 p.m. ET, these stocks had declined 12.2%, 19.2%, and 26.9%, respectively.
Dissecting These Stocks
Let's delve into these stocks' performance over the past three months. They gained momentum ahead of the election and surged further post-election on expectations of an economic boom in 2025 and beyond.
Much of this rise was due to speculation, not an actual improvement in the businesses.
Economic Fundamentals Might Regain Focus
Although these stocks have been popular, they haven't all been financially strong. While AppLovin is profitable, others are not and may be years away from consistent profits.
Moreover, valuations are starting to look expensive. Even AppLovin's 26 price-to-sales ratio is high for a mature ad-tech player.
Considering these factors, valuations might have exceeded the fundamental realities for all three stocks.
Volatility is the Cost of Doing Business
Highly volatile stocks like these can yield impressive returns over time, but they rarely rise in a straight line. They experience ups and downs in both operations and valuation.
Currently, we're witnessing this volatility. AppLovin is compensating for being undervalued after Apple's ATT changes, potentially overshooting its fundamentals. IonQ is benefiting from quantum computing's growing visibility, especially after Google's announcement this week.
BigBear.ai is seeing revenue growth (22% last quarter) and improving adjusted EBITDA. However, its results could be unstable given the early stages of AI in its markets.
While the past three months were positive, this week saw a reversal, and I believe that's the key takeaway from trading.
The Market: Speculation Meets Reality
In the short term, the market is driven by speculation about the next big thing. Transitioning from exciting tech, such as quantum computing or AI, to a profitable business can be a lengthy process. And stocks often drop when the hype dies down.
This was only a single week of trading, so it's not time to panic. But it's a reminder that stocks can fall faster than they rise. If the market becomes concerned about economic growth or interest rates in the near future, we might see those recent gains wiped out. And without profits to lean on, this could pose a significant challenge.
In light of this week's market reevaluation, investors are questioning if the rapid growth of top performers like IonQ, AppLovin, and BigBear.ai in 2024 was financially sustainable. Furthermore, the high valuations of these stocks, such as AppLovin's 26 price-to-sales ratio, might have surpassed their fundamental realities, indicating a potential need for investment reconsideration.