Blockchain Edge Data Analytics
Blockchain Edge Data Analytics
Alright, let's dissect this Q3 fair value estimate bump for tech stocks. Morningstar analysts are patting a lot of companies on the back, but I'm seeing some inflated egos—and valuations—that might not hold up under scrutiny.
The headline grabbers are obvious: SanDisk, Western Digital, AMD, Alphabet, Cloudflare. All tech, all supposedly riding the AI wave. Morningstar's analysts are practically giddy, boosting fair value estimates across the board. SanDisk's fair value estimate jumped from $40 to $135. Western Digital went from $82 to $165. AMD? Two bumps, landing them at $270 from a previous $155. Alphabet also got the double-tap, moving to $340 from $237. And Cloudflare? Up to $185 from $130.
The common thread? AI. Or, more accurately, the promise of AI. Western Digital's analyst, Eric Compton, says AI's "insatiable demand for storage capacity is creating a perfect environment for hard-disc drives." AMD is supposedly raking in "tens of billions of dollars of annual incremental revenue" thanks to a deal with OpenAI. Alphabet's got Gemini and Anthropic singing their praises. As reported by Morningstar, these stocks saw some of the largest fair value estimate increases during Q3 earnings, as detailed in 10 Stocks with the Largest Fair Value Estimate Increases During Q3 Earnings.
But let's pump the brakes for a moment. How much of this is real revenue now, and how much is projected revenue five years from now, based on assumptions that could easily crumble? This is where the fair value estimate starts to feel more like wishful thinking than rigorous analysis.
Consider AMD. Analyst Brian Colello is projecting 80% growth in data center AI products over the next three to five years. Eighty percent! That's hockey-stick growth based on a market that's still largely theoretical. And while Colello mentions AMD expects the OpenAI deal to earn "tens of billions of dollars of annual incremental revenue," he also notes that rollout starts in the second half of 2026. That's a long way off. A lot can happen between now and then. New competitors, technological shifts, economic downturns...the list goes on.
This brings up a critical question: how are these "fair value" estimates calculated? What discount rate are they using for these future revenue streams? Because if they're not accounting for the very real risk of those projections failing to materialize, these valuations are fundamentally flawed.
And here's the part of the report that I find genuinely puzzling. Colello raised AMD’s fair value to $210 per share from $155 following news of the firm’s deal with OpenAI and he wrote that AMD hinted at the potential for ‘well over $100 billion’ in future revenue.” Well over $100 billion. How much over? $101 billion? $200 billion? The phrase is so vague, it's practically meaningless. Are analysts just taking companies’ word for it?
Now, let's talk about Reddit. Their fair value estimate jumped to $200 from $140. Analyst Malik Ahmed Khan cites "strong monetization and healthy user growth," with adjusted EBITDA margins exceeding expectations. Okay, that's tangible. That's happening now.
Khan also notes that "the quality and breadth of ads improve each quarter." But here's where we need a dose of reality. Reddit's entire business model is built on user-generated content. A lot of that content is... well, let's just say it's not exactly brand-safe. So, while they might be attracting more advertisers, they're also walking a tightrope between monetization and alienating their core user base. It's a delicate balance, and one wrong move could send their valuation plummeting.
I've been watching the chatter on r/stocks and r/investing. The sentiment is mixed, to say the least. There's excitement about the potential, sure, but there's also a healthy dose of skepticism. One user summed it up perfectly: "Reddit's a gamble. High risk, high reward. Don't bet the farm." I'd say that's a pretty accurate assessment. (And yes, I consider online forums a very soft form of sentiment analysis.)
Interestingly, the utilities sector also saw a high rate of fair value increases. Roughly 18.9% of utilities stocks saw a fair value increase of at least 10.0%, and the average increase was 4.5%. This suggests a flight to safety, a move towards more stable, predictable investments in a volatile market. Utilities aren't sexy, but they're reliable. They're the tortoise in a race full of hares hopped up on AI hype.
Tech's Q3 fair value frenzy feels like a collective hallucination fueled by AI buzzwords. The analysts are projecting massive future growth, but they're not adequately accounting for the risks involved. I’m not saying these companies are doomed. But I am saying that these valuations are inflated, and a correction is inevitable. Investors should proceed with extreme caution.
