'Fast Money' traders on how to trade AI stocks

Key Concepts

• AI Trade: The market segment focused on artificial intelligence-related companies and technologies.
• Breakout: A technical analysis term indicating when a stock's price moves above a resistance level (e.g., previous highs, moving averages), often signaling a new upward trend.
• Basin Phase: A technical chart pattern resembling a "U" shape, where a stock declines, bottoms out, and then begins to rise, often preceding a breakout.
• Fibonacci Retracement Level: Horizontal lines indicating where support and resistance are likely to occur, based on Fibonacci sequences, used to identify potential reversal points.
• Moving Averages: Technical indicators that smooth out price data to identify trends.
• Downtrend: A pattern of lower highs and lower lows, indicating a stock's price is generally decreasing.
• Momentum: The rate of acceleration of a stock's price or volume. "Momentum to the downside" means prices are falling with increasing speed.
• Consolidation: A period where a stock's price trades within a relatively narrow range, often after a significant move, before continuing its trend or reversing.
• Pullback: A temporary decline in a stock's price within an ongoing uptrend.
• Valuations: The process of determining the current worth of an asset or company. "Discounting valuations" refers to ignoring or downplaying their importance.
• Euphoria: A state of intense excitement and happiness, often leading to irrational market behavior (e.g., buying stocks regardless of valuation).
• High Flier: A stock that has experienced rapid and significant price increases.
• Periphery Plays: Stocks that are related to a main trend (e.g., AI) but are not core players, often with less direct exposure or impact.
• Relative Terms (Trading): Comparing the performance of one stock or sector against another, or against the broader market.

AI Market Differentiation and Stock Analysis

The discussion on Fast Money highlights that while the broader AI trade might be taking a "breather," not all companies in the space are performing equally. Technical analyst Katie Stockton examines two specific stocks, UiPath and Appian, to illustrate this divergence, while other panelists discuss broader market sentiment and valuation concerns.

Specific Stock Analysis: UiPath (PATH)

Katie Stockton identifies UiPath (ticker: PATH) as a stock poised for a potential breakout.

• Technical Pattern: UiPath has completed a "big basin phase," a bullish chart pattern.
• Breakout Indicators: The stock has broken out "above previous highs," "above some moving averages," and "even a Fibonacci retracement level."
• Outlook: This technical setup "does bode well for intermediate term upside follow through," suggesting potential for continued gains, possibly with some "consolidation" first.

Specific Stock Analysis: Appian (APPN)

In contrast to UiPath, Appian (ticker: APPN) is presented as a stock facing a potential breakdown.

• Technical Pattern: Appian is in a clear "downtrend."
• Price Action: The stock is "near its lows or headed towards its lows," exhibiting "momentum to the downside."
• Outlook: This performance contrasts sharply with UiPath and "begs the question as to winners and losers in the AI space in general."

Broader AI Market Sentiment and Valuation Concerns

The conversation extends beyond individual stocks to the overall health and rationality of the AI market.

• Market Pullback as Differentiator: Katie Stockton suggests that a "broad based" market "pullback" could "differentiate between the ones that have better fundamental prospects." She advises investors to "pay a lot of attention to how these trade in relative terms during a pullback."
• Overvaluation and Euphoria: Panelist Dan expresses concern that "a lot of quality names got really overdone to the upside," with investors "discounting valuations." He points to "a lot of euphoria" in the market.
• Nvidia Example: As evidence of this euphoria, Dan cites Nvidia's performance: despite "missed their data center number last quarter," the stock was "down 1% the next day," indicating a lack of significant negative reaction to less-than-perfect news.

Comparison to Past Market Cycles and Other Tech Stocks

Dan raises the question of whether current AI stocks are following a similar trajectory to other tech companies that experienced significant declines from their 2021 highs.

• Historical Parallel: He mentions stocks like Zoom and PayPal, which were "down 80 some percent from their 21 highs," and notes that many current charts "look kind of similar."
• Diversity in the Space: Katie Stockton responds by emphasizing the "diversity in the space." She notes that "for everyone that's a high flier like a Micron or AMD there's one that looks quite the opposite."
• Examples of Divergent Performance: She cites HubSpot, "periphery plays" like ServiceNow (which "doesn't look great"), and CRM (Salesforce), which "has good support, but maybe doesn't look great from a momentum perspective," to illustrate the varied technical pictures within the broader tech and AI ecosystem.

Synthesis and Conclusion

The discussion underscores a critical theme: the AI market, despite its overall growth and excitement, is not monolithic. There is significant differentiation among individual stocks, both in their technical chart patterns and underlying fundamental prospects. While some, like UiPath, show strong bullish signals, others, like Appian, exhibit bearish trends. The panelists caution against market euphoria and highlight concerns about overvaluation, suggesting that a broad market pullback could serve as a crucial test, separating companies with robust fundamentals from those that have been buoyed by speculative sentiment. Investors are advised to focus on relative performance and acknowledge the diverse landscape of the AI and broader tech sectors.