What Happened?

A number of stocks fell in the morning session after markets became increasingly wary of high valuations following a significant AI-driven rally. 

The tech-heavy Nasdaq fell approximately 1.4% as a wave of caution swept through the market. A key example of this trend is Palantir Technologies, which saw its shares drop around 7% despite reporting record quarterly results that surpassed analyst estimates and raising its full-year revenue outlook. This seemingly contradictory movement highlighted a broader sentiment shift. Investors appeared to be engaging in profit-taking, concerned that the recent surge in AI-related stocks had led to stretched valuations. This broader market caution affected high-growth technology companies that had previously surged on AI optimism but faced increased scrutiny, signaling a potential cooling-off period for the sector. 

Adding serious weight to this caution, leadership at both Goldman Sachs and Morgan Stanley highlighted the possibility of a correction in the equity markets over the next couple of years. Despite the euphoria driven by AI optimism and the promise of future rate cuts, these banks viewed this cooling-off period not as a disaster, but as a necessary and healthy feature of a long-term bull market.

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:

• Electronic Components company Novanta (NASDAQ: NOVT) fell 5.2%. Is now the time to buy Novanta? Access our full analysis report here, it’s free for active Edge members.
• HVAC and Water Systems company Northwest Pipe (NASDAQ: NWPX) fell 4%. Is now the time to buy Northwest Pipe? Access our full analysis report here, it’s free for active Edge members.
• Professional Tools and Equipment company Hillman (NASDAQ: HLMN) fell 4.4%. Is now the time to buy Hillman? Access our full analysis report here, it’s free for active Edge members.
• Renewable Energy company ChargePoint (NYSE: CHPT) fell 4.9%. Is now the time to buy ChargePoint? Access our full analysis report here, it’s free for active Edge members.
• General Industrial Machinery company L.B. Foster (NASDAQ: FSTR) fell 3.3%. Is now the time to buy L.B. Foster? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Novanta (NOVT)

Novanta’s shares are quite volatile and have had 16 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 previous big move we wrote about was 11 days ago when the stock gained 8% on the news that an analyst at William Blair gave the company a Buy rating. The analyst, Brian Drab, was noted for having a positive track record in the Industrial Goods sector, adding weight to the positive outlook.

Novanta is down 14.6% since the beginning of the year, and at $128.88 per share, it is trading 29.4% below its 52-week high of $182.65 from November 2024. Investors who bought $1,000 worth of Novanta’s shares 5 years ago would now be looking at an investment worth $1,122.

P.S. In tech investing, "Gorillas" are the rare companies that dominate their markets—like Microsoft and Apple did decades ago. Today, the next Gorilla is emerging in AI-powered enterprise software. Access the ticker here in our special report.