Tech stocks appear to be getting toppy.
Julian Lin, Investing Group leader behind the Best of Breed Growth Stocks service, suggests valuations among key tech companies are headed toward peak levels. And it’s not just stocks tied to the AI boom. The Seeking Alpha analyst also says investors should carefully scrutinize new developments in other tech sectors, such as the buzz surrounding quantum computing.
Lin’s advice: Avoid the “FOMO” talk and take a cautious approach, not only with tech investing but also with the markets.
His 2025 Outlook is below.
Seeking Alpha: AI continues to be the big tech investing story. And this has led to some frothy valuations. Is tech generally in a bubble due to all the AI attention?
Julian Lin: While there are still attractively valued stocks out there if you look hard enough, there’s no denying that these are bubbly conditions. The S&P 500 (SPY) is trading around all-time highs in terms of prices as well as valuations. I’m seeing many tech stocks soar 30% or even 40% in the same day post-earnings on what appear to be normal results. Snowflake (SNOW) is a recent example. I’m seeing many stocks fully recover any post-earnings losses on no significant news.
What is the new “Zoom (ZM) of 2021?” Palantir (PLTR) stands out as the most bubbly stock in my coverage universe. The stock has reached levels such that even if revenues grew by 100% in 2025, followed by another year of 100% growth in 2026, then the stock would be trading at around 15x those numbers. Two years of triple-digit growth is higher than even the most bullish analyst estimates, but the stock looks too richly valued even so. And yet, I’m still seeing investors and analysts unveil new price targets and predictions implying exponential upside ahead for the stock. If one was wondering if we will ever see the 2021 tech euphoria return, then they should wonder no more: Make no mistake, we are back.
Seeking Alpha: What are investors missing in the tech space? Are there tech sectors investors need to look at for opportunities?
Julian Lin: With the tech sector and the market overall trading at historically rich valuations, this is unfortunately the kind of environment in which one must be very skeptical of any bargains that remain.
After the 2022 crash in tech stocks, more than 80% of the high-quality growth names that I cover at Best of Breed Growth Stocks were flashing “buy” or “strong buy” ratings. Today, the pendulum has flipped, with more than 50% of the stocks rated “hold” or “sell.”
Best of Breed Growth Stocks
This is the kind of market in which one might be able to find bargains trading at some relative discount to peers, but I again stress that extreme levels of optimism have raised expectations.
Seeking Alpha: Are you favoring value over growth? Large-cap over small- and medium-cap? Or is it time to just be cautious with any investment approach?
Julian Lin: Throughout the cycles, I always remind myself to avoid increasing my risk tolerance. Some investors try to adapt by switching from growth to value, which in theory makes sense due to the cheaper valuations. But in practice, this might mean opening up to riskier names. It’s important to remember that whereas many high-quality growth stocks tend to be backed by net cash balance sheets and long-term secular growth stories, many value stocks are instead burdened by highly leveraged debt positions and suffer from secular headwinds. Valuation alone is not a sufficient source for a margin of safety.
Seeking Alpha: The new tech buzzword: Quantum computing. Thoughts on investing in this area?
Julian Lin: It’s promising to see Alphabet (GOOG) (GOOGL) unveil some fruits of their moonshot ambitions, but I find the quantum computing sector to be a potential sign of bubbly conditions. Many of the quantum computing names like IonQ (IONQ) or Rigetti Computing (RGTI) have seen a staggering V-shaped recovery in their stock prices since the 2022 tech crash. However, this recovery does not appear sufficiently justified by an associated improvement in the fundamentals.
Seeking Alpha: How do you navigate market volatility?
Julian Lin: As I have discussed with subscribers, I continually remind myself that short-term US Treasuries yield around 4.4%, the iShares 0-3 month ETF (SGOV) is a preferred pick. I have also been exploring utilizing option strategies like collars and cash-secured puts in order to target market-beating return potential at lower risk. It’s of tantamount importance to fight the “fear of missing out” as patient optimism may prove to be a better strategy than reckless aggressiveness. This is still a stock picker’s market, but the stakes are as high as ever.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
