Valuations for many stocks have been rising sharply this year. But investors should be careful not to assume that the current year's trends will continue into 2024. Growth stocks, especially, are trading at elevated prices and could be due for a correction in the near future. Three stocks that may run out of steam next year include Riot Platforms (RIOT +8.24%), C3.ai (AI +2.09%) and Tesla (TSLA +3.37%).
1. Riot Platforms
There's no mystery behind the impressive performance of Riot Blockchain this year. Crypto valuations have been soaring, with Bitcoin's price jumping by more than 150%. Riot has more than just gone along for the ride, however, as its share price is up a monstrous 417%.
NASDAQ: RIOT
Key Data Points
Riot is a Bitcoin-mining and digital infrastructure company. As the price of Bitcoin goes up, its revenue does as well. In its most recent earnings report, for the third quarter ended on Sept. 30, the company's revenue totaled $51.9 million and was up 12% year over year. Riot, however, still posted a net loss of $45.3 million this past quarter (versus a loss of $32.4 million in the prior-year period).
While the company is investing more into expanding its production capacity, the risk for investors is that this stock is still going to depend heavily on the value of Bitcoin, which has proven to be volatile over the years. Unless Bitcoin has another strong performance in 2024, Riot Platforms is a stock that may run out of steam in the near future. Unless you have a high risk tolerance, you're better off avoiding the stock.
2. C3.ai
Artificial intelligence (AI) company C3.ai has benefited from the AI boom this year. Although it doesn't have a chatbot, it provides AI solutions to companies. The only problem -- the growth just hasn't been all that impressive. While investors have seen Nvidia and other companies generate strong growth numbers this year thanks to AI, that hasn't really been the case with C3.ai.
NYSE: AI
Key Data Points
Over the past three quarters, its revenue has been within a range of $72 million to $73 million, and there hasn't been a significant increase in quarter-over-quarter revenue. It has largely been flat. The troubling scenario is when C3.ai starts to lap this year's numbers. Last quarter (which ended on Oct. 31), the company's revenue totaled $73.2 million and was up 17% year over year. But if the year-over-year growth rate, which normally gets more attention than the quarter-over-quarter growth rate, gets down to single percentage points, the wheels could come off for the stock.
Year to date, shares of C3.ai are up more than 180%, but in recent months they have been declining. That trend could continue into 2024. C3.ai is a risky AI stock to own, and it may have already peaked.
3. Tesla
Electric vehicle (EV) maker Tesla is a favorite for long-term growth investors. The EV market is a hot one to be in, and Tesla is a leading company in that respect. Over the years, its financials have improved, the business is now profitable, and the stock is one of the top ones in the S&P 500.
NASDAQ: TSLA
Key Data Points
This year, Tesla's stock has doubled in value. But it too faces some challenges heading into next year. The company's recently launched Cybertruck, for instance, won't be profitable until at least 2025, according to CEO Elon Musk.
Meanwhile, the company's margins have already been under pressure due to price cuts. Tesla's gross margin last quarter (for the period ended Sept. 30) was just 17.9%, versus 25.1% in the same period a year earlier. In October, Musk also warned investors that "if the macroeconomic conditions are stormy, even the best ship is still going to have tough times."
Tesla is the only one of the three stocks on this list that could make for a good long-term investment. But investors need to prepare for the possibility that the EV stock could slow down next year, or even fall in value due to potentially worsening profit numbers and economic headwinds.
