3 of the Most Overbought Stocks in the Market Right Now

Written by Ryan Hasson on October 10, 2025

As the market continues its record-breaking surge, several leading themes, including data storage, artificial intelligence, quantum computing, and defense, have propelled select stocks to remarkable highs. Yet, in the midst of this euphoric run, some names have become extremely overbought, flashing potential warning signs for near-term investors.

While markets can defy gravity for longer than most expect, even the strongest trends eventually cool off. One of the most reliable gauges for spotting potential overextensions is the Relative Strength Index (RSI). It’s a momentum indicator that helps identify overbought or oversold conditions. Typically, RSI readings above 70 suggest that a stock may be overbought, while readings in the 80s or 90s often precede short-term pullbacks or consolidations.

Below are three large-cap stocks currently trading at extreme RSI levels, suggesting investors consider waiting for a reset before chasing further upside.

IREN Limited: Overheating Amid the AI and Bitcoin Boom

IREN Limited (NASDAQ: IREN), formerly known as Iris Energy, has become one of 2025’s standout performers. The company operates data centers powered by renewable energy, built for energy-intensive workloads such as AI training and inference. Riding dual tailwinds from the artificial intelligence boom and Bitcoin’s renewed strength, IREN has surged an incredible 488% year-to-date, catapulting its market capitalization to nearly $16 billion.

While the long-term narrative for clean, high-performance computing remains compelling, IREN’s short-term setup looks stretched. Its RSI recently climbed to 82, and early trading on Oct. 7 pushed that figure closer to the upper 80s, well into overbought territory.

From a technical perspective, this kind of momentum often precedes a cooling period or reversion to the mean. Investors looking for an entry might be better served waiting for a pullback toward the $50 area, where the stock last consolidated. Analysts share a similar view: despite a Moderate Buy consensus rating, their $47.73 average price target implies roughly 17% downside from current levels.

Kratos Defense & Security: Red-Hot in Aerospace and Defense

Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) has become one of the most explosive large-cap names in the defense sector. The company designs and delivers advanced systems for national security, ranging from unmanned aerial vehicles to missile defense and directed-energy weapons.

The stock has skyrocketed 280% year-to-date, driven by excitement surrounding defense innovation and a broader rotation into aerospace names, such as Rocket Lab USA. However, after seven consecutive green sessions, KTOS now sports an RSI of 87.2, one of the highest readings across the market.

Despite strong fundamentals and better-than-expected Q2 earnings, valuation metrics are stretched to extremes. The company trades at a P/E ratio exceeding 1,000 and a forward P/E of 132, indicating clear signs of overheated sentiment. While momentum may continue in the short term, a technical pullback appears likely. Traders eyeing an entry might want to wait for a retracement toward the 20-day moving average near $80, where the stock was previously based before its most recent breakout.

AeroVironment: Sky-High and Running Hot

AeroVironment, Inc. (NASDAQ: AVAV), a leading defense technology firm specializing in unmanned aerial systems, precision strike munitions, and scalable energy systems, has also joined the list of overextended high-flyers. The stock has gained 155% year-to-date, pushing its market capitalization toward $20 billion.

Interestingly, AVAV’s surge has come despite missing its Q1 EPS expectations, underscoring how much of the current move is driven by momentum rather than fundamentals. The stock now trades at a forward P/E of 85. While analysts are bullish with a Moderate Buy rating, they see about an 11% downside from current levels based on their consensus price target.

The RSI tells a similar story. At 89.3, AVAV ranks among the most overbought stocks in the entire market. While markets can remain frothy longer than expected, the probability of a near-term pullback is rising quickly. A retracement toward $350 or even $300 would offer a healthier setup for long-term investors than chasing the current elevated price.

Eventually, Even the Strongest Stocks Need to Cool Off

These three stocks, IREN, Kratos Defense, and AeroVironment, have all delivered spectacular gains, reflecting powerful market themes from AI to defense spending. Yet, with RSI readings well above 80, each has entered territory where risk outweighs near-term reward.

For disciplined investors, patience often pays. Waiting for pullbacks toward key support or prior consolidation zones could provide more favorable risk-reward setups. In a market this hot, even the strongest names will eventually need time to cool off.

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