Although tech stocks carried major market indices over the past few years, all isn’t well in tech-land. Whether due to interest rates, increased AI enthusiasm that’s somewhat misplaced, or just wider tech fatigue, tech stocks seem due for a dip. These are the tech stocks to eject that you need to evacuate from your portfolio.
Of course, not all tech stocks are created equally. Some are truly products of their time, offering a unique value proposition that’s made irrelevant by consumer or economic changes, or simply targeting too niche an audience to remain relevant.
These three tech stocks to sell have plenty of imminent downside potential, making them risky bets that will not pay off.
Trump Media & Technology Group (DJT)
Trump Media & Technology Group’s (NASDAQ:DJT) Truth Social platform had a brief window to capitalize on wider social media missteps and trends. Unfortunately for investors, that opportunity has long passed, making this one tech stock to sell.
Truth Social’s moment came amid clear instances of de-platforming, censorship and algorithmic cancellation, all of which were once just rumors but ultimately vindicated by leaks and journalist investigations. Back then, there was real potential in creating a large social media ecosystem independent of the bigger names. While other platforms existed, they were often too small or micro-targeted to gain momentum, and few figures could generate as much hype and attention as Trump.
However, protracted legal battles and questionable decision-making by CEO Devin Nunes dashed any hopes of Truth Social becoming a viable competitor. Meanwhile, the continued X/Twitter rebranding and reorientation addresses nearly every ethos Truth Social champions, and the strategy is succeeding. Global user rates for X are accelerating, and advertising is finally stabilizing despite ongoing calls for advertising boycotts. In contrast, Truth Social’s user rates are plummeting, and ad revenue is all but invisible.
Affirm Holdings (AFRM)
Affirm Holdings (NASDAQ:AFRM) may seem an unusual choice for a list of tech stocks to sell, given its strong performance this year (up 161% since May 2023) and its $10 billion market cap. However, this tech stock is one you should sell immediately, as it faces challenging times ahead.
Affirm’s primary service, buy now, pay later (BNPL), provides consumers with instant micro-loans at the point of purchase. BNPL schemes often attract consumers with lower creditworthiness, which is crucial to understanding AFRM’s future risks. With a noticeable increase in credit card delinquencies, Affirm will likely face a surge in unpaid BNPL loans.
A closer examination of Affirm’s recent financial disclosures reveals a concerning $56 million increase in its provision for credit losses (reserves for expected loan defaults) from one quarter to the next, just before summer spending season. This period likely saw increased consumer reliance on Affirm’s BNPL offerings, further stretching their financial commitments. Given current consumer financial behaviors and broader economic indicators, Affirm’s outlook appears bleak, making it a risky tech stock to hold. Dump this and the rest of these stocks to eject.
Udemy (UDMY)
Udemy (NASDAQ:UDMY) may seem like a great idea, but in an era of abundant free learning opportunities, expecting customers to pay for information they could easily find on YouTube or in books is unrealistic. Although the tech stock has a few big-name corporate clients like AT&T (NYSE:T), larger firms will likely increase their in-house production for mandatory training and similar coursework that Udemy offers.
A major concern is Udemy’s ability to retain existing customers. The company reported a 13% increase in total enterprise customers and a 25% increase in recurring revenue in the previous quarter. Sounds promising, right? Not so fast.
Udemy also reported a 9% drop in net dollar retention (how long customers stick around) and a 10% drop in large customer net dollar retention (defined as companies with 1,000 or more employees). These stats indicate that companies aren’t sticking around for further service once they get what they need. This trend doesn’t bode well for Udemy as it struggles to differentiate itself in a competitive EdTech landscape. Do yourself a favor and drop these stocks to eject.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.