There’s a rotation going on the stock market.
The magnificent seven tech stocks and various AI names have started to dip in recent weeks. Meanwhile, long-forgotten smaller-capitalization and value stocks have begun to rally.
This shift in the market forces has reinvigorated a great number of meme stocks, with many names posting sharp rallies in July. But traders shouldn’t get carried away with this move. These seven meme stocks to avoid remain on incredibly uneven footing and are likely to slump again later this year.
AMC Entertainment (AMC)
When thinking of meme stocks to avoid, AMC Entertainment (NYSE:AMC) springs to mind.
The movie theater chain has been a leading arena for traders since 2021. AMC’s bulls continue to hope for a tremendous short squeeze to lift shares to the heavens.
Unfortunately, the company’s poor fundamentals have squashed those hopes. Specifically, AMC’s revenues only rebounded to $4.8 billion in 2023, leaving them well short of the $5.5 billion that the company brought in back in 2019. Factoring in the high level of inflation in the ensuing period, that’s an especially poor result.
AMC remains unprofitable and analysts see the company losing money in 2024 and 2025. And from 2023’s relatively low revenue level, analysts see sales slipping this year amid a weak movie slate and lackluster consumer spending.
Worst of all, shareholders have had to endure incredible dilution to fund AMC’s operating losses. AMC’s share count (adjusted for reverse splits) has risen from just 24 million shares in 2019 to 189 million shares now. It’s hard for meme stock buying to offset that level of new share issuance in a company.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) can’t hold a charge. The struggling hydrogen power firm has been in business since the 1990s. Despite having many chances to prove itself, the hydrogen fuel cell company seems farther from profitability than ever.
PLUG stock has plunged more than 99% from its all-time highs. Despite a steady stream of press releases and new developments, little of it ever seems to amount to profitable business expansion. In fact, Plug Power lost money each of the past 10 years. Recently, the results have worsened. Plug Power lost more than $1 billion in 2023, and losses are continuing to mount in 2024.
Traders keep coming back to PLUG stock, seemingly in hopes of a short squeeze. The issue is, however, that Plug Power needs to unleash an unending stream of dilution on the market to keep funding its operating losses.
To that point, Plug Power’s outstanding share count has soared from 159 million in 2014 to 595 million as of the most recent report. And it’s about to go up yet again; PLUG stock sunk recently on news of another stock offering to raise money.
Serve Robotics (SERV)
Serve Robotics (NASDAQ:SERV) is a small technology company which is attempting to commercialize delivery robots.
The company is most known for its partnership with Uber’s (NYSE:UBER) food delivery operation. The framework is in place for Serve to produce as many as 2,000 delivery bots for Uber to serve the Los Angeles market.
However, SERV stock was not cooking up much excitement this year, with the stock lingering in the $2 range recently.
All that changed this week. Nvidia (NASDAQ:NVDA) disclosed that it purchased 62,500 SERV shares for $4 each, adding to a prior stake that it had obtained via a promissory note.
It’s exciting that Nvidia involved, of course. But this transaction is chump change for a company of Nvidia’s size, and the semiconductor company is known for taking equity positions in a variety of small start-ups. Investors should be exceedingly cautious with SERV stock given that shares have already quadrupled from recent levels and are now trading at a massive valuation.
SoundHound AI (SOUN)
I’ve been a long-time skeptic on SoundHound AI (NASDAQ:SOUN).
The technology firm develops independent voice-driven artificial intelligence solutions. It has some exciting plans, and SoundHound signed up a credible client list.
However, the issue is that SOUN stock doesn’t appear to be particularly tied to its fundamentals. Rather the valuation has run far ahead of the underlying business. Like with Serve Robotics, it seems that traders are buying SoundHound primarily because Nvidia is an investor.
SoundHound AI may eventually become a compelling business. But the firm generated just $11 million in revenues last quarter and is running large losses. That’s nowhere near what’s necessary to support the company’s current $1.6 billion market cap.
QuantumScape (QS)
QuantumScape (NASDAQ:QS) is a company that is attempting to commercialize a new solid-state battery model.
Years ago, QS stock was one of the biggest winners of the SPAC boom, with shares rising tenfold at one point. However, a new battery technology takes a long time, from prototype to recurring revenues. Meanwhile, short sellers raised pointed questions about the company’s underlying technology.
The latest issue for QuantumScape comes from politics. Former President Donald Trump has taken the lead in the polls, and his pick for vice president, Sen. J.D. Vance of Ohio, has proposed policies that could have massively negative ramifications for the battery and electric vehicle industries.
QuantumScape popped higher recently on news of a further partnership with Volkswagen. But with analysts seeing minimal revenues through at least 2025 and QuantumScape being unprofitable for years, QS stock is a sell on all rallies.
Lucid Group (LCID)
QuantumScape isn’t the only meme stock facing issues with a potential Trump presidency.
In fact, with Trump reportedly making an anti-electric vehicle stance a cornerstone of his campaign, the whole EV sector could come under fire.
Bigger players like Tesla (NASDAQ:TSLA) may already have enough of a balance sheet, brand, and recurring cash flow base to endure an anti-EV administration. For a small struggling outfit like Lucid Group (NASDAQ:LCID), however, this could be a crippling blow.
In Q1, Lucid generated a modest $173 million in revenues, which rose only slightly from the $149 million it brought in during the same period of 2023. That growth rate simply isn’t going to cut it, given that Lucid lost an eye-watering $730 million from operations last quarter alone.
LCID stock popped 40% in recent weeks. It’s time to dump this meme stock before a potential Trump presidency further weakens this EV firm’s already tenuous competitive positioning.
Jumia Technologies (JMIA)
Jumia Technologies (NYSE:JMIA) has long been pitched as the so-called Amazon (NASDAQ:AMZN) of Africa.
In theory, that could be a highly appealing business. In practice, Jumia has struggled to turn that promise into reality. That are significant structural challenges in building an African e-commerce giant, such as lack of delivery infrastructure, limited free trade regions, and major language and cultural differences between countries.
Long story short, Jumia’s revenues were essentially dead flat between 2019 and 2023, almost entirely missing out on the recent e-commerce boom. Jumia continues to lose significant sums of money.
JMIA stock has popped sharply following positive analyst coverage. That’s not a bad thing, of course. But with Jumia shares up 300% year-to-date despite its middling fundamentals, this is a meme stock to sell now.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in AMZN and NVDA.