Why is Nuix Ltd (NXL) Falling Today?

By Jason McIntosh | 28 January 2025

Nuix Limited (ASX: NXL) shares faced a sharp sell-off today, closing 20.5% lower at $4.31 after hitting an intraday low of $3.21. The significant decline comes on the back of a disappointing earnings update and broader concerns within the tech sector.

Let’s explore the key reasons behind the fall, the technical picture, and strategies for managing risk in volatile markets.

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Disappointing Earnings Update

Nuix released an update for the first half of FY25, warning of weaker earnings compared to the prior corresponding period.

Key Financial Highlights:

• Statutory EBITDA: Expected to drop 7% to 19%, ranging from $14 million to $16 million.
• Underlying EBITDA: Forecasted to decline by 1% to 8%, landing between $26 million and $28 million.
• Contributing Factors:
  • Reduced capitalization of research and development expenses.
  • A $2.2 million cost related to an efficiency improvement program.

While Nuix reported an 8% to 9% increase in annualized contract value (ACV) for 1H FY25, this represented only modest growth of 2% to 3% compared to 2H FY24. Delayed pipeline deals and longer procurement cycles have compounded investor concerns about the company’s near-term performance.

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Global Tech Sell-Off

Nuix’s decline is not happening in isolation. The stock is also being impacted by a broader sell-off in tech shares, triggered by competitive developments in the artificial intelligence (AI) space.

Key Market Dynamics:

• A Chinese tech start-up, DeepSeek, launched an energy-efficient generative AI chatbot that has overtaken ChatGPT as the most downloaded free app on the Apple iOS Store in the U.S.
• This innovation has raised questions about the competitiveness of existing AI-focused companies, including Nuix, which provides specialized software for analyzing large data sets.

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The Technical Picture

Nuix shares have been trading below declining 50- and 100-day moving averages since mid-January, signaling a weak technical structure. Stocks trading in this setup are often vulnerable to further declines, as downward momentum can attract additional selling pressure.

Key Observations:

• Declining Averages: The stock’s position below key moving averages reflects a bearish trend, making it less attractive to professional investors who prioritise upward momentum.
• Increased Risk: Stocks in downtrends often face heightened vulnerability, especially during periods of negative news or broader market weakness.
• Trailing Stops in Action: Motion Trader’s trailing stop strategy triggered an exit in NXL on January 13 at $5.54, locking in gains of up to 207%. This strategy helped members avoid today’s sharp decline.

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The Role of Trailing Stops

Nuix’s sharp fall highlights the importance of disciplined risk management strategies like trailing stops. By letting profits run during uptrends and selling when a stop is triggered, investors can protect gains and minimise losses.

Key Benefits of Trailing Stops:

1. Lock in Profits: Motion Trader’s trailing stop helped members secure substantial gains before the sharp sell-off, demonstrating the value of exiting when trends reverse.
2. Limit Downside Risk: Trailing stops provide a systematic way to manage risk, avoiding emotional decision-making during periods of heightened volatility.
3. Focus on Momentum: Many professional investors prioritise stocks with upward momentum, exiting positions when they fall below key technical levels.

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Key Takeaways for Investors

1. Monitor Technical Indicators: Nuix’s position below declining moving averages highlights the importance of tracking key technical signals to identify potential vulnerabilities.
2. Adopt Risk Management Strategies: Using trailing stops can help protect capital and capture gains in volatile markets.
3. Be Cautious with Downtrends: Stocks in persistent downtrends often carry elevated risks, and buying into weakness without clear signs of a reversal can lead to significant losses.

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Final Thoughts

Nuix’s disappointing earnings update and broader concerns about competitiveness in the AI sector have driven a sharp sell-off in its share price. Combined with a weak technical structure, today’s decline underscores the importance of disciplined risk management and a focus on stocks in strong uptrends.

At Motion Trader, we empower investors with systematic, rules-based strategies that help them navigate volatile markets with confidence. By prioritising momentum and using trailing stops, you could minimise risk while maximising your long-term returns.

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Want to Learn More About Managing Risk in the Stock Market?

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By staying informed and following a structured investing process, you can make better decisions and build confidence in your trading journey.

Jason McIntosh | Founder, Motion Trader

Jason’s professional trading career began over 3 decades ago. He’s a founder of two stock advisory firms, a listed funds management business, and has helped thousands of investors navigate the stock market. Click here to read Jason’s incredible story of, at age 20, sitting alongside some of the world’s greatest traders (and the life changing experience that came with that).