I'm watching those SaaS and AI stocks because their valuations are getting crazy. You see companies like C3.ai and SoundHound shoot up on AI hype, but I wouldn't bet on their revenue catching up anytime soon. It reminds me of Shopify in 2020. That stock went to the moon, then merchants pulled back spending and boom, reality hit. That kind of correction happens fast. When a stock's price gets way ahead of the actual business, I'm selling before the hype runs out.
The US stock market appears to be sound on the surface although the backbone stretches into 2026. Corporate profits are not following the estimates, and AI optimism is still covering the poor fundamentals in various fields. The present market is inclined to quality and cash than hype. The rotating of institutional money towards defensive assets has already begun hence signaling that a cycle of correction is gaining momentum. Liquidity is becoming tighter and the speculative stocks which had skyrocketed on narratives perpetrated by stories will be short from retracing when rate cuts dry up or earnings fail. Such stocks as Super Micro Computer (SMCI), VinFast Auto (VFS) and C3.ai (AI) are overextended. The AI hardware boom has overpriced SMC1, however, downsides could be capped by declining demand and margin pressure by hyperscalers. VinFast is speculative having no or minimal stability in its production, low delivery switchover and a free float that alters price action. C3.ai continues to gather the interest in the name recognition category, however, its recurring revenue increase is rather low in comparison with its enterprise value. Both stocks are momentum-oriented than earnings-supported, which implies that they moderate when institutional rotation increases. The main street investor is advised to begin scaling down exposure when the insider selling starts to pick up or when the earnings momentum no longer follows the price trend. Execution of huge price increases without corresponding fundamentals are exhausting. The professional step to make money in tranches-sell half-positions to strength-instead of throwing hands up. The pursuit of overheated names will generally destroy capital more rapidly than stable compounders. These times are used by smart investors to re-allocate towards a sector with long term earnings visibility, rather than into a speculative hype cycle.
I believe it is an excitement-driven market rather than a fundamentally driven market at the moment. The valuations of growth stocks are reminding me of the late periods of the 2021 rally. The S and P 500 is firm at a facade, but that firmness is concentrated in several megacaps and artificial intelligence-related companies. My prognosis concerning the year 2026 is moderation and not collapse. The market is overextended and unless the earnings are in tandem, we will experience corrections. I remind clients that patiently this cycle will pay off more than speculation - when optimism goes faster than reality, it turns. IonQ is a similar tone to Biotech starting up givesaways I have witnessed previously: high potential, low turnover. Another example is Joby Aviation, the company is an impressive technology, but it is being valued hungry despite the fact that it would only reach commercial sizes in a few years once regulation and infrastructure can keep up. To some clean-energy and AI infrastructure plays, even the balance sheet cannot keep up with their climb. These are excellent narratives, however, it is the speculation in narrative that knocks off the foundation of portfolios. My dictum is easy; when you are examining stock prices more than financial statements, it is time to cut. I have discovered how clients reaped rewarding returns as they awaited an extra leg up. Make gains, keep your luck to your own purpose, and leave when you are beaten, but prospectively, by discipline, rather than excitement.