These 11 Stocks Are Probably in a Bubble. It's Time to Get Out. — Barrons.com

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Rigetti Computing

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MP Materials

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By Jacob Sonenshine

The buzz on Wall Street is whether the stock market is in a bubble. It's tough to pin down the right answer, but it's plain to see that a select group of names probably are.

The S&P 500 is up almost 15% this year, extending what has now been a three-year bull market, driven by steady economic growth, inflation that has dropped enough for the Fed to cut rates, and a brand-new boom in AI.

And that's one snag to nailing the yes-no question about a bubble. Are companies spending too much on data centers, which are essential for AI? If data center spending suddenly slows down, stock in companies that build them will tumble because they've already enjoyed massive gains.

Another snag — and one that has just come on to the scene — is whether banks can handle any bad private-credit loans they that might have made. If a private credit fund defaults on its debt, it could drag down a major bank, though the risk of that today seems pretty low.

Of course, when or if these risks come to pass is really hard to predict. So, instead of looking at the entire market, we're going to point out individual stocks that probably are in bubbles.

Trivariate Research's founder Adam Parker put together a list of names that appear to be at the highest risk of collapsing. Here's why: they've gained at least 100% in the six months ended Friday, and traded in the top 10% of enterprise value-to-forecast sales for the coming 12 months out of a basket of 3000 U.S. stocks. Put simply, they're among the most expensive stocks.

They also had to have high short interest, with many featuring short interest as a percentage of their total shares outstanding in the teens or higher, versus high single digits on average between the S&P 500 and Nasdaq. The translation: traders have made large bets that these stocks will drop within the next few months.

Also, each name had to score in the bottom half of Trivariate's quality model. That makes a stock particularly volatile, either because the company is losing money or because it often fails to meet the market's profit expectations. Relatedly, each company on the list has to have analyst 2026 earnings forecasts that are lower than the projection at the start of this year.

Overall, these stocks are primed to drop if they disappoint the market, given that they're way up, while their fundamentals have only worsened.

We picked 11 to name, benefiting from the market's hopes for future innovations — AI and quantum computing.

Six are quantum computing stocks Rigetti Computing, D-Wave Quantum, and Quantum Computing Inc.; MP Materials, a rare earth metals miner; and software companies Applied Digital and SoundHound.

The other five are uranium, chemical and power companies, a few that are booming from AI investment. They are Uranium Energy, NuScale Power, Eos Energy, PureCycle Technologies, and Bloom Energy.

Parker's list also has ones that have gained completely on company-specific developments, but it's no coincidence that many of those are associated with broader growth trends that could endure major setbacks.

Not all of these stocks will collapse, but chances are high that some will.

Buyer, beware.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

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Mw These Rare-Earth Stocks May Be The Trump Administration's Next Buy Targets

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Shares Of Usa Quantum Computing Firms Rise After Friday's Declines

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Dj Buy Usa Rare Earth Stock, Says Analyst. This Is Why. - Barrons.Com

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Inflection Point Acquisition Corp. II

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Buy USA Rare Earth Stock, Says Analyst. This Is Why. — Barrons.com

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Inflection Point Acquisition Corp. II

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MP Materials

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Al Root

Rare earth stocks have been on fire. Wall Street is still positive on the sector.

William Blair analyst Neal Dingmann launched coverage of USA Rare Earth on Monday with the equivalent of a Buy rating, believing the U.S. government isn't done investing in domestic rare earth companies. He doesn't have a price target for shares. A Buy at William Blair essentially means they expect the stock to outperform the market.

Shares of the company were 5.5% in premarket trading at $29.26, while S&P 500 and Dow Jones Industrial Average futures were up 0.3% and 0.2%, respectively.

"USA Rare Earth is one of few fully integrated rare earth companies," wrote Dingmann. "It features a research facility developing proprietary rare earth extraction and purification technology, a magnet manufacturing facility, and majority ownership of the Round Top mine in Texas. Its magnet facility will soon begin production, supported by its acquisition of Less Common Metals (LCM), providing metal-making and strip-casting operations, and we expect the combination of these factors to generate long-term shareholder return."

USA Rare Earth doesn't generate significant sales yet. Its projects are under development. That hasn't stopped investor interest, though. Coming into Monday trading, USA Rare Earth stock was up about 142% so far this year.

Interest in rare earths rose after China, which dominates production and processing of them, threatened export controls on the materials, which put U.S. manufacturing at risk. Rare earth materials end up in everything from an EV to a wind turbine to a fighter jet. Shares of MP Materials, the largest rare earth producer in the Western Hemisphere, were up more than 400% so far this year, entering Monday trading.

The overreliance on China helped lead the Defense Department to do a blockbuster deal with MP in July that included an equity stake, a price floor for rare earth products, and a guaranteed customer for any magnets produced from planned capacity. The agreement transformed the domestic rare earth industry overnight.

"Hot take. The U.S. government may announce [a] sizable investment in the company," added Dingmann in his report.

If he's right, it would give shares another boost.

Overall, five analysts cover USA Rare Earth now, according to FactSet. All five rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.

The average analyst price target for USA Rare Earth stock is about $24. That's below where shares are trading, but Wall Street has had trouble keeping up with gains. The more recent price targets for USA Rare Earth stock are closer to $30 a share.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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Automation Software Stocks Q2 Earnings: SoundHound AI (NASDAQ:SOUN) Best of the Bunch

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Quarterly earnings results are a good time to check in on a company’s progress, especially compared to its peers in the same sector. Today we are looking at SoundHound AI and the best and worst performers in the automation software industry.

The whole purpose of software is to automate tasks to increase productivity. Today, innovative new software techniques, often involving AI and machine learning, are finally allowing automation that has graduated from simple one- or two-step workflows to more complex processes integral to enterprises. The result is surging demand for modern automation software.

The 7 automation software stocks we track reported a very strong Q2. As a group, revenues beat analysts’ consensus estimates by 8.4% while next quarter’s revenue guidance was in line.

Luckily, automation software stocks have performed well with share prices up 23% on average since the latest earnings results.

Best Q2: SoundHound AI

Born from the idea that machines should understand human speech as naturally as people do, SoundHound AI develops voice recognition and conversational intelligence technology that enables businesses to integrate voice assistants into their products and services.

SoundHound AI reported revenues of $42.68 million, up 217% year on year. This print exceeded analysts’ expectations by 31.2%. Overall, it was an incredible quarter for the company with an impressive beat of analysts’ billings estimates and a solid beat of analysts’ EBITDA estimates.

SoundHound AI pulled off the biggest analyst estimates beat and fastest revenue growth of the whole group. Unsurprisingly, the stock is up 78.5% since reporting and currently trades at $19.19.

We think SoundHound AI is a good business, but is it a buy today? Read our full report here, it’s free for active Edge members.

ServiceNow

Built on a single code base that processes over 4 billion workflow transactions daily, ServiceNow provides a cloud-based platform that helps organizations automate and digitize workflows across departments, from IT and HR to customer service and security.

ServiceNow reported revenues of $3.22 billion, up 22.4% year on year, outperforming analysts’ expectations by 2.9%. The business had an exceptional quarter with an impressive beat of analysts’ billings and EBITDA estimates.

Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 5.3% since reporting. It currently trades at $904.50.

Is now the time to buy ServiceNow? Access our full analysis of the earnings results here, it’s free for active Edge members.

Slowest Q2: UiPath

Starting with robotic process automation (RPA) and evolving into a comprehensive automation powerhouse, UiPath provides an AI-powered business automation platform that enables organizations to create software robots that mimic human actions to streamline repetitive tasks and processes.

UiPath reported revenues of $361.7 million, up 14.4% year on year, exceeding analysts’ expectations by 4.1%. It was a satisfactory quarter as it also posted a solid beat of analysts’ EBITDA estimates but a significant miss of analysts’ billings estimates.

UiPath delivered the weakest full-year guidance update in the group. Interestingly, the stock is up 44.5% since the results and currently trades at $15.64.

Read our full analysis of UiPath’s results here.

Microsoft

Originally named "Micro-soft" for microcomputer software when founded in 1975, Microsoft is a global technology company that develops software, cloud services, devices, and AI solutions for consumers, businesses, and organizations worldwide.

Microsoft reported revenues of $76.44 billion, up 18.1% year on year. This result surpassed analysts’ expectations by 3.5%. Overall, it was an exceptional quarter as it also produced an impressive beat of analysts’ revenue estimates and a narrow beat of analysts’ revenue estimates, as Personal Computing, Intelligent Cloud, and Business Services all beat.

The stock is flat since reporting and currently trades at $514.26.

Read our full, actionable report on Microsoft here, it’s free for active Edge members.

Pegasystems

With a "Center-out Business Architecture" approach that transcends organizational silos, Pegasystems develops software that helps organizations automate workflows and use artificial intelligence to improve customer experiences and business processes.

Pegasystems reported revenues of $384.5 million, up 9.5% year on year. This number topped analysts’ expectations by 5.9%. It was a strong quarter as it also logged a solid beat of analysts’ EBITDA estimates and an impressive beat of analysts’ revenue estimates.

Pegasystems had the slowest revenue growth among its peers. The stock is up 4.7% since reporting and currently trades at $53.36.

Read our full, actionable report on Pegasystems here, it’s free for active Edge members.

Market Update

As a result of the Fed’s rate hikes in 2022 and 2023, inflation has come down from frothy levels post-pandemic. The general rise in the price of goods and services is trending towards the Fed’s 2% goal as of late, which is good news. The higher rates that fought inflation also didn't slow economic activity enough to catalyze a recession. So far, soft landing. This, combined with recent rate cuts (half a percent in September 2024 and a quarter percent in November 2024) have led to strong stock market performance in 2024. The icing on the cake for 2024 returns was Donald Trump’s victory in the U.S. Presidential Election in early November, sending major indices to all-time highs in the week following the election. Still, debates around the health of the economy and the impact of potential tariffs and corporate tax cuts remain, leaving much uncertainty around 2025.

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