3 ‘Bubbly’ Stocks to Avoid
We think these stocks have gotten ahead of themselves.
Susan Dziubinski: Hi, I’m Susan Dziubinski, co-host of The Morning Filter podcast. On a recent episode, Morningstar’s senior technology sector analyst Will Kerwin talked about stocks he thought looked “bubbly,” meaning they’d gotten ahead of themselves. Will’s bubbly stock list included memory stocks SanDisk SNDK, Micron MU, and SK Hynix HXSCL.
Today, we’re covering three more stocks that look bubbly, where we think the market is being far too optimistic. We think these are stocks to avoid for now.
3 ‘Bubbly’ Stocks to Avoid
The first bubbly stock on our list is Lam Research LRCX. There’s certainly a lot to like about the company. For starters, we assign the company a wide economic moat rating thanks to its strong chip manufacturing expertise and steep customer switching costs. We expect the company to be able to increase its already sizable market share, too. And as AI demand continues to accelerate, so do orders for Lam equipment. Still, we think the market’s gotten ahead of itself on the stock. We think Lam stock is worth $220, and shares trade well above that.
Read Morningstar’s full report on Lam Research.
The second name on our list of stocks to avoid today is a leading maker of hard disk drives, Western Digital WDC. While hard disk drives are being phased out in key end markets in favor of solid-state drives, they are cost-effective data storage solutions in the age of AI. And as a result, Western Digital has been a key beneficiary of the AI infrastructure buildout boom. The stock’s been a stunning performer during the past 12 months, and shares trade way above our $415 fair value estimate.
Read Morningstar’s full report on Western Digital.
The final bubbly stock to avoid is Nebius NBIS. Nebius is a neocloud company. What’s that? Well, the insatiable demand for artificial intelligence has led to a supply/demand imbalance, where the established hyperscalers can’t satisfy all the demand. Enter neocloud businesses that have raised massive amounts of equity and debt to set up data centers, purchase GPUs, and rent them out to customers. Rather than remaining a bare-metal provider that just rents computing capacity and leaves most technical issues to the client, Nebius is trying to migrate beyond basic hardware provision by building additional layers of software and managed services on top of the hardware. We like that idea, but we nevertheless assign Nebius a $120 fair value estimate, and the stock trades well above that.
Read Morningstar’s full report on Nebius Group.
For more stock ideas, be sure to tune in to The Morning Filter wherever you get your podcasts and visit Morningstar.com, too.
Morningstar director Eric Compton and senior analysts Javier Correonero and Will Kerwin provided the research behind this segment.
Watch 3 Core Stocks to Buy at the Right Price for more from Susan Dziubinski.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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