The tech sector now faces a reckoning after years of inflated valuations fueled by near-zero interest rates followed by the AI euphoria. Now, investors have worsening macros and trade wars.
The S&P 500 is almost in correction territory, and the Nasdaq index has already reached that point. The reversal is quite stark, and it wouldn’t be wrong to call it a bubble since many stocks are trading at extremely rich valuations, even after the recent selloff.
History suggests that the most overhyped sectors collapse first. Even if you think that tech stocks are at healthy valuations and won’t be knocked down in a recession, it is still a good idea to sell certain stocks with weak fundamentals that are overvalued.
These two tech stocks could decline catastrophically:
Rigetti Computing (NASDAQ:RGTI) is a quantum computing company, and it is a sector that is burdened by speculative hype and unsustainable valuations.
In Q4 2024, Rigetti Computing reported $2.27 million in revenue, down 32.64% year-over-year. Losses widened to almost $153 million, and net “profit” margin is at -1,706%. RGTI stock has declined as investors have grown more cautious, but it still has a $2.1 billion valuation despite a 55%-plus drop from its peak.
Now many would argue about the long-term potential here, but it makes little sense as investors are dumping this stock, and the cash reserves here aren’t enough to cover losses until it reaches breakeven. Instead, you could enter a dilution death spiral if the stock keeps going down and the company needs to raise more cash. Analysts project no profitability until the 2030s.
Rigetti diluted shares 30% in 2024 via equity, and insiders dumped significant amounts of RGTI stock. The CFO, the CTO, and a director all sold RGTI just this week.
RGTI stock is what you buy before a rally, and it’s what you sell as it starts to end. I believe the current stock market climate makes it one of the top tech stocks to sell.
MicroStrategy (NASDAQ:MSTR) will turn into “MicroTragedy” if there’s another crypto winter. Of course, I don’t expect the company to go bankrupt, but there’s a real risk that it can still decline over 80%-plus from here, and easily so.
It has become a precarious proxy for Bitcoin speculation. That has turned out well for the company so far, but all it will take for investors to sour on it is bad BTC performance. BTC hasn’t performed well due to the economy taking a turn for the worse and Trump’s policies not being as bullish as previously thought, and this has already caused MSTR to decline over 45% from its November peak.
The company’s financials are entirely linked to Bitcoin. The “Strategy” is to buy up as much BTC as possible using debt and continuous equity offerings. This isn’t very sustainable when the pendulum inevitably swings the other way and drags the stock down with it.
The company also recently announced its plans to raise $21 billion via perpetual preferred stock (NASDAQ:STRK), offering 8% dividends to buy more BTC. This move follows a $2 billion convertible notes offering in January 2025, which funded the purchase of 20,356 BTC.
A Bitcoin crash of 50% (75%+ has happened many times before) would be apocalyptic for MSTR stock as it would halve the assets sheet. Plus, if Bitcoin stagnates at lower prices, dividend obligations can outpace BTC gains.
The only way MSTR can turn out well is if the broader market keeps rallying.
