Pfizer (PFE 0.55%), Moderna (MRNA 1.69%), and Novavax (NVAX 3.54%) were all popular stocks to own when demand for COVID vaccines was strong. But these companies are all preparing for what's likely to be a soft year in 2023 and a big decline in revenue from the previous year. Demand for vaccines is still there, but whether it's enough for these companies to hit their forecasts this year is questionable.

Here's why the latter half of the year could make or break these stocks.

Updated vaccines will soon be available

Fall season is also flu season, and it's a time when people are accustomed to receiving their annual shots. This year it will also serve as the first big test of demand for COVID shots. COVID vaccine makers Pfizer, Moderna, and Novavax have been working on updated vaccines that target new variants. One of the most concerning has been XBB.1.5, which has led to a worrisome increase in COVID cases in China.

The companies could have updated shots available by the fall. The key question is how much demand there will be for the vaccines as that will have a significant impact on the revenue these companies generate this year.

Why demand could be underwhelming

While XBB.1.5 led to a surge in COVID cases in China, in the U.S. the number of daily new cases remains on the decline. And data from the Centers for Disease Control and Prevention (CDC) show that for the vast majority of the country, weekly hospitalizations due to COVID are low, with a rate of less than 10 people per 100,000.

Without a big bump in case numbers, it may prove difficult to convince people they need to take updated vaccines. The CDC estimates that only 17% of the U.S. population has received an updated (bivalent) booster dose.

Pharmacy retailer Walgreens Boots Alliance reported its latest earnings numbers last month, and they suggest the same thing: Demand simply isn't there. The company's profits were down and the stock hit a 12-year low as the volume of COVID tests and vaccines has been "significantly lower" from a year ago.

The companies could see disappointing numbers

The problem for COVID vaccine makers is that they are already expecting big drop-offs in revenue this year. But if demand proves to be even less than what they are projecting it to be, that will likely result in significant earnings and sales misses when they go to report later this year.

For a company like Pfizer, which is diverse and has been busy with acquisitions and expanding its business beyond COVID, the risk may not be that large. While its sales will drop from more than $100 billion last year to as low as $67 billion in 2023, the company remains focused on growth. The healthcare giant expects to add $25 billion in new annual revenue to its business by 2030 from a combination of acquisitions and the development of its pipeline.

However, for Moderna and Novavax, which depend more heavily on COVID-related revenue, there could be considerable risk this year. Novavax projects that its 2023 revenue will be between $1.4 billion and $1.6 billion. Last year the company's sales came in at $2 billion, and grew at a rate of 73%.

Moderna, meanwhile, projects $5 billion in revenue this year, which would be a sharp decline from the more than $18 billion in product sales it reported for 2022. While its vaccine for the respiratory syncytial virus (RSV) may soon obtain approval, at its peak that may contribute just $2 billion in revenue.

If these companies fall short of these forecasts or if there's an underwhelming guidance that reflects a slowing demand for updated vaccines, that could lead to sell-offs for these volatile stocks.

Should you avoid these stocks?

Pfizer could make for a decent contrarian investment, because while it faces declining revenue this year, it could make up for some or most of that in the long run as it continues to pursue mergers and acquisitions.

Moderna and Novavax are much more volatile investments to own and investors are better off steering clear of them. Novavax's pipeline centers around the flu and COVID, which don't offer a whole lot of upside.

Moderna's pipeline is more diverse, but beyond vaccines for RSV and the cytomegalovirus, it's in a similar boat -- and there's nothing in the near term that will transform the business to make it a safer buy. At a market cap of over $46 billion, Moderna still looks incredibly overvalued given the risk and its dependence on COVID.

Investors should wait and see how Moderna and Novavax do before buying shares of them, as there's just too much risk in these businesses right now.