The recent trend of companies trimming down their workforce and integrating AI technology with the aim of cost-saving has sparked concerns about an overheated market. In 2023, the tech industry alone shed 262,595 jobs, and that trend has now expanded into the non-tech sector, with nearly 30,000 employees laid off in January 2024. This collective behavior, aimed at widening operating margins, has raised questions about the potential overvaluation of numerous firms.

Echoes of the Past

The parallel to the dot-com bubble burst in March 2000 sends shivers down the spine of many seasoned investors. In that calamity, Nasdaq lost approximately 78% of its value, wiping out swift gains made due to excessive investment and unmet promises. The aftermath was a recession in 2001, coinciding with the 9/11 attacks, when both consumer spending and business investments plummeted.

Today, the signs point to a looming recession that could deflate the overinflated valuations of many companies.

Apple Inc: Riding on Shaky Ground

Apple Inc, the behemoth valued at $2.86 trillion, has leaned heavily on stock buybacks to bolster earnings per share (EPS) for shareholders. Over the past decade, the company has been the reigning king of stock buybacks, having splurged an astounding $573 billion on the endeavor.

While the strategy has been pivotal in projecting Apple as a ‘safe haven’ for investment, it is also precariously unsustainable, potentially driving the firm to accrue debt just to sustain the facade. Moreover, in a recessionary climate, Apple’s core business model could face severe blows, particularly in a saturated and mature smartphone market, where high-priced models could struggle to attract buyers.

With Apple’s earnings stagnating, down 3% from 2022, and a price-to-earnings ratio (P/E) of 30.68 for 2023, the company’s lofty valuation appears to hinge on an optimistic outlook that may be hard to sustain in the face of economic headwinds.

Carvana Co: Racing into Uncharted Waters

Carvana Co, an online platform for used car sales, has witnessed a staggering 334% surge in its stock value over the past year, with a 60% uptick in the last three months alone. Its innovative model entails sourcing, reconditioning, and delivering used cars, offering customers a holistic online experience inclusive of competitive financing and guaranteed value.

However, previous downturns have demonstrated a reduction in the demand for used cars, making Carvana’s untested business model susceptible. Only in the Q3 2023 earnings report did the company finally notch a significant net income of $741 million after a string of losses.

Amid the praise for its innovation, Carvana’s unproven track record could struggle to weather the storm in a recessionary climate.

Uranium Energy: A Radiant Mirage?

Uranium Energy, riding the wave of anti-solar and anti-wind sentiments, has witnessed a surge in its stock of 87% over the past year, escalating by a staggering 726% since 2020. The push for nuclear power and small modular reactors by the European Union has ignited a higher demand for uranium, resulting in a meteoric rise for uranium mining stocks.

Nevertheless, with a 794.3 P/E ratio, the company’s stratospheric valuation seems unjustifiable, appearing to be driven more by exuberance than a solid investment thesis.