What Happened?
A number of stocks fell in the afternoon session after the major indices continued to pull back, with technology stocks accounting for most of the market's largest decliners.
A key reason for this trend is that much of the recent market gains were concentrated in the "AI trade," which includes these large technology and semiconductor companies. So this could also mean that some investors are locking in some gains ahead of more definitive feedback from the Fed.
Despite the downturn, some analysts viewed this as an opportunity to own some of the "Core AI winners." Dan Ives of Wedbush Securities commented, "In our view, the tech bull cycle will be well intact for at least another 2-3 years, given the trillions being spent on AI infrastructure/software/chips/power/apps looking ahead. This remains our tech playbook and investor roadmap." Additionally, mixed earnings reports from retailers, such as Target, have added to the market's weakness. Investors are closely monitoring these reports for insights into the broader economic health and the potential impact of new tariffs on inflation.
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:
- Apparel Retailer company Abercrombie and Fitch (NYSE: ANF) fell 4.7%. Is now the time to buy Abercrombie and Fitch? Access our full analysis report here, it’s free.
- Home Furniture Retailer company RH (NYSE: RH) fell 6.4%. Is now the time to buy RH? Access our full analysis report here, it’s free.
- Traditional Fast Food company Restaurant Brands (NYSE: QSR) fell 3.9%. Is now the time to buy Restaurant Brands? Access our full analysis report here, it’s free.
- Electrical Systems company Powell (NASDAQ: POWL) fell 6.9%. Is now the time to buy Powell? Access our full analysis report here, it’s free.
- Automation Software company SoundHound AI (NASDAQ: SOUN) fell 6.5%. Is now the time to buy SoundHound AI? Access our full analysis report here, it’s free.
Zooming In On Powell (POWL)
Powell’s shares are extremely volatile and have had 48 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 biggest move we wrote about over the last year was 9 months ago when the stock dropped 17.6% on the news that the company reported weak third-quarter results, with sales falling significantly below Wall Street's estimates. New orders came in at $267 million, a significant decline compared to the previous quarter. Total backlogs were also flat quarter on quarter and relative to the previous year. Given the deceleration in some of the forward growth indicators, markets are likely worried about the near-term sales outlook, with management also acknowledging that the first quarter of its fiscal year is "seasonally slower."
On a more positive note, gross margin improved due to higher volume levels across all manufacturing facilities, supported by improved operating efficiency and product pricing. As a result, adjusted EBITDA and EPS beat analysts' expectations during the quarter. Overall, this quarter could have been better.
Powell is up 4% since the beginning of the year, but at $237.91 per share, it is still trading 32.5% below its 52-week high of $352.37 from November 2024. Investors who bought $1,000 worth of Powell’s shares 5 years ago would now be looking at an investment worth $9,154.
Here at StockStory, we certainly understand the potential of thematic investing. Diverse winners from Microsoft (MSFT) to Alphabet (GOOG), Coca-Cola (KO) to Monster Beverage (MNST) could all have been identified as promising growth stories with a megatrend driving the growth. So, in that spirit, we’ve identified a relatively under-the-radar profitable growth stock benefiting from the rise of AI, available to you FREE via this link.
