What Happened?
A number of stocks fell in the morning session after markets became increasingly wary of high valuations following a significant AI-driven rally.
The tech-heavy Nasdaq fell approximately 1.4% as a wave of caution swept through the market. A key example of this trend is Palantir Technologies, which saw its shares drop around 7% despite reporting record quarterly results that surpassed analyst estimates and raising its full-year revenue outlook. This seemingly contradictory movement highlighted a broader sentiment shift. Investors appeared to be engaging in profit-taking, concerned that the recent surge in AI-related stocks had led to stretched valuations. This broader market caution affected high-growth technology companies that had previously surged on AI optimism but faced increased scrutiny, signaling a potential cooling-off period for the sector. Adding serious weight to this caution, leadership at both Goldman Sachs and Morgan Stanley highlighted the possibility of a correction in the equity markets over the next couple of years. Despite the euphoria driven by AI optimism and the promise of future rate cuts, these banks viewed this cooling-off period not as a disaster, but as a necessary and healthy feature of a long-term bull market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- HVAC and Water Systems company AAON (NASDAQ: AAON) fell 6.1%. Is now the time to buy AAON? Access our full analysis report here, it’s free for active Edge members.
- Engineering and Design Services company EMCOR (NYSE: EME) fell 3%. Is now the time to buy EMCOR? Access our full analysis report here, it’s free for active Edge members.
- Construction Machinery company Caterpillar (NYSE: CAT) fell 3.8%. Is now the time to buy Caterpillar? Access our full analysis report here, it’s free for active Edge members.
- Maintenance and Repair Distributors company WESCO (NYSE: WCC) fell 3.5%. Is now the time to buy WESCO? Access our full analysis report here, it’s free for active Edge members.
- Home Construction Materials company Quanex (NYSE: NX) fell 3.8%. Is now the time to buy Quanex? Access our full analysis report here, it’s free for active Edge members.
Zooming In On AAON (AAON)
AAON’s shares are very volatile and have had 23 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 4 days ago when the stock dropped 3.7% on the news that Wall Street expectations pointed to a significant year-over-year decline in earnings for the company's upcoming report. The heating and air conditioning equipment maker was expected to post quarterly earnings of $0.33 per share, which represented a sharp 47.6% drop from the same period in the previous year. Although revenues were projected to rise by 3.3% to $338.05 million, the anticipated plunge in profitability appeared to worry investors, prompting a sell-off ahead of the official results.
AAON is down 23.5% since the beginning of the year, and at $90.27 per share, it is trading 35.9% below its 52-week high of $140.75 from November 2024. Investors who bought $1,000 worth of AAON’s shares 5 years ago would now be looking at an investment worth $2,267.
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