CrowdStrike, Broadcom, Palo Alto Stocks Dip Post-Earnings Amid High Expectations

There is no denying that waking up Thursday morning to the post-earnings declines in CrowdStrike and Broadcom is painful. It was also painful to see a similar sell-off in Palo Alto Networks in the prior session. In fact, Palo Alto stock is now riding a three-session losing streak. Ultimately, all three companies reported solid quarterly results and forward guidance, and Wall Street analysts largely increased their price targets. We did, too. However, all three ran hot into their prints, and "solid" was not nearly good enough to meet the lofty expectations of an investor base that is looking for the next Snowflake, Hewlett Packard Enterprise or Dell , all of which exploded to the upside after their guides crushed estimates. What gives? We need to put these moves in context. Think back to the end of May, when Snowflake reported its quarter. Shares of the data storage and analytics provider rocketed to the upside, more than 36% on May 28, and kicked off an enterprise software rally that saw buyers rush into the IGV, the expanded tech-software ETF . The next day, Dell guided way above expectations and saw its stock rip nearly 33% higher. Fast forward to Tuesday, and HPE, like Dell, shot higher by more than 19% on a very strong guidance raise. So, what does that get us? The answer is momentum — a market driven more by "animal spirits" than anything else, especially when it comes to AI. In a market like that, it's important to keep moves like we're seeing Thursday morning in context. Consider this: At the close on May 27, just moments before Snowflake reported its quarter that would spark the rally that ignited our stocks right into their own quarterly releases, Palo Alto Networks shares were priced at $248 each, with CrowdStrike at $645 and Broadcom at $421. All three closed at record highs this week. Based on Thursday afternoon trading, Palo Alto Networks is still up 9.3% since May 27 (based on a $271 share price), with CrowdStrike still up 7.8% (at $695 per share). Broadcom is down about 1.7% (at $414 apiece). By zooming out a week, which in the context of long-term investing is absolutely nothing, we see that the stocks were due for a breather and got way overextended. PANW CRWD,AVGO YTD mountain Palo Alto Networks, CrowdStrike, Broadcom YTD For CrowdStrike and Palo Alto, the overshoot can be attributed to Snowflake unleashing the IGV. Both names were crushed earlier this year on the incorrect notion that AI would hurt the cybersecurity business. Jim had been shooting down that narrative from the beginning, and this quarter was more evidence that he was right. AI is not disputing cyber companies. It's making them more essential than ever. Swift recoveries also tend to overshoot. For Broadcom, the overshoot comes back to hardware players Dell and HPE, providing monster guides, along with expectations that Alphabet's $85 billion equity raise would lead to more orders for Broadcom. Traders piled into Broadcom stock, betting on a huge guide that didn't materialize. Given that traders didn't get what they were looking for, it makes sense that Broadcom would give up the move that hot money produced. But, we're not traders. That's why on Thursday, Jim Cramer remained bullish on all three, saying he would be willing to buy the Broadcom dip, just not yet. He advised that investors let the stock settle down a bit before buying. We're not ready to act yet on CrowdStrike and Palo Alto Networks, which we last trimmed in May and April, respectively. He said CrowdStrike may be a buy in the coming days. What is important to understand, though, is that these stocks are still up huge, and that Thursday's price action has nothing to do with deteriorating fundamentals or anything troubling in their businesses. In fact, it's the opposite. Their fundamentals and businesses remain strong. Bottom line This is what happens when expectations and animal spirits push a stock too far, too fast, and are then met with the reality that comes with earnings. As members look to manage these positions, try not to let these one-day or two-day moves color your thinking too much. These stocks, despite their recent selloffs, are up huge on the year. The one caveat: There is a ton of stock coming to market in the form of the mega-IPOs of SpaceX, Anthropic, and OpenAI — not to mention Alphabet's massive fundraising stock sale. Jim has been warning that this huge influx of supply could lead to some selling as traders look to raise cash to put into these offerings. In long-term investing, which we espouse at the Club, near-term supply-driven stock declines are certainly something to consider, but not something to scare you out of the market. If anything, they are something to be taken advantage of. (Jim Cramer's Charitable Trust is long CRWD, PANW, AVGO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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