US tech stocks continue to soar ever higher, and both GameStop (NYSE:GME) and Palantir Technologies (NYSE:PLTR) have experienced an unprecedented surge. With less excitement around UK stocks, I’m drawn to US shares. But are these worth a long-term place in my portfolio as I seek diversification and growth?
US video game stock
GameStop hot last week. The video game company’s share price surged 70% on Friday and ended the day up 51%. This was the result of increased momentum in an incredibly bullish run that has seen the GameStop share price rise 1,000%+ in just four months. On Monday the stock also opened 47% up on its previous closing price and surged another 50%, only to dramatically fall. It was a rollercoaster day and one that has left analysts dumbfounded.
The retailer has been struggling in response to the pandemic, but has proved a favourite for retail investors. It’s also been a popular stock among short sellers betting against it though. The culmination of the two seemed to be the catalyst for last week’s incredible rise. As more and more buyers pile in to the stock, it forces the price upwards. This means the short sellers are losing money. They then must buy the stock to offset their losses, causing the price to surge even higher in what’s known as a short squeeze.
Prior to the short squeeze, interest in the stock was rising because sales of next-generation gaming consoles were improving. There was also the prospect of actions by activist investors looking to persuade management to improve its financial future. Nevertheless, GameStop is not a money-spinning US stock with lots of free cash flow and profitability. It’s cash-flow-negative and endured a 30% decline in revenues in Q3. Considering the pandemic has annihilated its business, it doesn’t have much going for it as a viable investment for me. With so much speculation/controversy it may continue to rise short term, but at this price, I don’t see a long-term value investment. I won’t be buying.
Data on display
Palantir Technologies (NYSE:PLTR) is another US tech stock that enjoyed a price surge on Friday and Monday. Owned by Paypal founder Peter Thiel, it’s a data analytics company that counts the US government and CIA among its clients.
The reason for the price surge appears to have been in response to a recent contract win, plus sheer speculation. Last week it announced a multi-year, multi-million-dollar contract with Pacific Gas and Electric Company. It will provide the utility company with enhanced technology through the use of its Foundry software.
The excitement may also be in anticipation of Palantir’s Demo Day happening today. This will include public demonstrations of its software platforms, Foundry and Gotham. By showcasing its technology, the public will get a clearer picture of how its customers use the software.
Although Palantir is a long-established company with an impressive network of contacts, I think it’s overvalued at its current share price. It’s caught up in the pandemic wave that’s been buoying US tech stocks, I feel. Despite being around since 2003, it was loss-making prior to going public last year. Since then, it’s begun turning things around, which is helping boost its popularity. But time will tell if it can keep up the momentum. I think I’ve missed the boat to invest at a reasonable price point for now.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended PayPal Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.