Looking around the market today, many stocks are trading at eye-watering valuations. The risk is that I overpay to invest in a company and lose money.
Given this, here are two popular Nasdaq shares that I won’t be buying in 2025.
Trumped-up Tesla
The first stock I’m avoiding is Tesla (NASDAQ: TSLA). You don’t get much more popular than Elon Musk’s pioneering electric vehicle (EV) firm. It regularly tops the charts of the UK’s most bought shares.
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With a 1,130% share price rise in five years, it’s been a monster winner.
Yet Tesla also remains the ultimate Marmite stock. Investors either love the firm’s innovation and ambition, or hate and ridicule it as a grossly overvalued car company.
I stand somewhere in the middle. Tesla’s clearly more than a car firm because it has a fast-growing solar power business and is building humanoid robots. I doubt Peugeot is doing that.
Yet around 79% of the company’s revenue still comes from EVs. And those are harder to shift nowadays when cash-strapped people are putting off buying big-ticket items, including brand new cars.
Going on the latest Q4 figures, Tesla sold 1.79m vehicles last year (down slightly on 2023). Yet the stock is up 66% in a year and now trades at a price-to-earnings ratio of 108. This sort of multiple is usually reserved for a rapidly growing company, not one whose core business is facing growth challenges.
With Donald Trump likely to rein in EV subsidies, potentially putting further pressure on sales, I’m giving Tesla stock a swerve this year.
Quibbling about valuation again
The second popular stock I’m avoiding like the plague is Rigetti Computing (NASDAQ: RGTI). This quantum computing stock has been one of the most bought at Hargreaves Lansdown in recent weeks.
It has surged by an incredible 1,200% since early October!
However, a quick peek under the bonnet shows that Rigetti is incredibly speculative. That’s because quantum computing still faces significant scientific and engineering challenges that need to be addressed before it reaches widespread commercial adoption.
Consequently, even Nvidia CEO Jensen Huang has just predicted that useful quantum computers are 15 to 30 years away. As I write today (8 January), the stock has crashed 45% following this reality check.
Still, this is a fascinating technology, which could one day lead to game-changing breakthroughs across many industries. In healthcare, quantum computers could design new drugs for diseases like cancer or Alzheimer’s. And it holds the promise of more efficient electric batteries, as well as accelerated AI development.
If a small firm goes on to become the global quantum computing leader, it could generate life-changing returns for early investors. As things stand though, there’s not enough evidence this will be Rigetti.
Looking ahead, the firm is expected to post revenue of $16.2m this year. So it’s encouraging that revenue is being generated at this early stage. However, a share price of $10 translates into a forward price-to-sales ratio of 155.
This absurd valuation tells me to avoid the stock. During a market downturn, it could easily plunge by another 40%. That’s because the fundamentals aren’t yet there to back up the company’s valuation.
This year, I intend to dig into quantum computing investing opportunities, but I’ll be avoiding this stock for now.
