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Why Big Data Stocks Palantir, MongoDB, and C3.ai Fell Hard on Tuesday | The Motley Fool

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What happened

Shares of big data-oriented software stocks Palantir (PLTR -4.61%), MongoDB (MDB -4.37%), and C3.ai (AI -4.59%) fell much more than the market today, down 4.4%, 4.5%, and 4.6%, respectively, as of 1:56 p.m. ET.

There wasn’t much company-specific news today; in fact, the only recent news on these three big data stocks has generally been positive.

Still, none of these three unprofitable growth tech stocks is in favor at the moment, as investors appear to be fleeing technology stocks for profitable “old-economy” stocks. This is especially true as interest rates were rising again today.

In addition, year-end tax-loss selling may also be playing a part in declines for stocks with large year-to-date losses, which these three have in spades.

So what

Although long-term bond yields have come down since peaking in late October, they have been on the rise recently. Today, the 10-year Treasury bond yield was rising again back off its recent lows, up 11 basis points today alone to 3.86%.

When bond yields go up, that tends to depress growth tech stocks that are either unprofitable or trade at a very high earnings multiple. The higher interest rates are, the more future earnings are discounted, with longer-term earnings far out in the future discounted the most.

That certainly fits the bill for these three stocks. Although each of these companies shows a lot of promise in the growing field of using massive amounts of data to improve business decision-making and outcomes, all three are losing significant amounts of money on a GAAP basis as they spend heavily to capture that growth.

Company

TTM Revenue (Millions)

TTM Net Income (Millions)

Palantir 

$1,830

($561)

MongoDB 

$1,190

($365)

C3.ai 

$270

($239)

Data source: Yahoo! Finance. TTM= Trailing 12-months.

However, future growth is not a certainty, competition is fierce, and each company is also displaying some decelerating top-line numbers as they come down from the acceleration in digitization brought on by the pandemic. In fact, C3.ai saw its revenue growth slow to just 7.1% last quarter.

So it has been the worst of all possible worlds for growth tech stocks like these in 2022: Growth slowed off difficult comparisons, resetting expectations lower for future growth; and interest rates shot higher, depressing the value of those lowered earnings expectations even further.

Today, there may be another headwind to contend with: tax-loss selling. Investors with large losses on stocks may be selling their shares at this moment to capture the losses for 2022. If investors sell at a loss and don’t buy back for at least 30 days, they can offset other capital gains they may have. And if the loss is a short-term one — meaning a stock bought less than a year ago — that loss can offset not only capital gains but also up to $3,000 worth of income.

Now what

It should be noted that there has been some positive news for these stocks. Both Palantir and C3.ai recently won awards in the defense sector, with Palantir recently winning a contract with the U.K. Ministry of Defence for 75 million pounds, while C3.ai scored a deal with the U.S. Missile Defense Agency. Meanwhile, MongoDB just received an upgraded price target from analysts at Needham & Company on Dec. 21 and reported a strong earnings beat earlier this month.

Still, these positives just aren’t enough to overcome uncertainty around unprofitable stocks in a rising-rate environment. Until these companies begin to generate actual profits on a GAAP basis, it will be hard to find investors confident enough to get behind them. One thing that could help is if interest rates fall again, but we may be in a new era of higher rates that could last a while, so such a scenario shouldn’t be counted on.

Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends MongoDB and Palantir Technologies. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.

Article originally posted on mongodb google news. Visit mongodb google news

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