Investor optimism surrounding the tech industry has caused fundamentally weak stocks ServiceNow (NYSE:NOW) and Zillow Group (NASDAQ:ZG) (Z) to trade at unsustainable valuations. As the market braces for a potential correction in the near term, we think these overvalued stocks are best avoided now. Read on.The tech industry is in the limelight once again because rising cases of the COVID-19 Delta variant have caused the re-imposition of social distancing and lockdown measures in several countries. Consequently, the tech-heavy benchmark Nasdaq Composite has gained 3.6% over the past five days to close Friday’s trading session at record 14,846.06 points.
With established companies dominating this space, relatively smaller and fundamentally weak tech companies face cut-throat competition. As a result, the near-term prospects of many small tech players look bleak.
Cases in point are ServiceNow, Inc. (NOW) and Zillow Group, Inc. (Z), which look significantly overvalued at their current price levels given their weak growth prospects. Furthermore, because the market is expected to witness a rolling correction soon, these two stocks could suffer sharp pullbacks.