Despite the current frenzy surrounding artificial intelligence, it continues to be early days for the technology. Leading engineers and programmers behind AI applications caution that chatbots and other technologies remain in their infancy and that we’ve only scratched the surface of what artificial intelligence is likely to accomplish in the future. As a result, winners and losers can be expected to emerge in the AI space in the coming months and years. Smaller start-ups could fail and some larger players could be pushed to the sidelines as the sector grows and matures. Even now, many companies are rushing out chatbots and other AI products that are underwhelming audiences or so laughably bad that they are being ridiculed on social media. Given the current chaos and churn surrounding artificial intelligence, here are three AI stocks to sell before they crash and burn.
Well, that was disappointing. Chinese tech giant Baidu (NASDAQ:BIDU) just unveiled its much-hyped response to ChatGPT called Ernie Bot to a global audience of analysts and journalists, and, by all accounts, it landed with a thud. BIDU stock fell 10% during the company’s Ernie Bot presentation as onlookers realized that they were watching a slickly produced, pre-recorded video of the AI-powered chatbot rather than a live demonstration of its capabilities.
The video showed Ernie Bot answering math questions, speaking in Chinese dialects, and producing an image. However, the bot looked more like a preview of what’s to come than an actual chatbot that can be used today.
With the stock price crumbling, Baidu’s executives cut the question-and-answer session short and announced that Ernie Bot will be tried by an initial group of users with invitation codes. Moreover, a select group of companies will be invited to embed the chatbot into their products via Baidu’s cloud platform to test it out.
The whole event was underwhelming, especially given that Baidu is viewed as China’s leader in generative AI.
With BIDU stock down 58% from its all-time high reached in February 2021, investors should steer clear of this tech company.
To be fair, there are arguments to be made for and against C3.ai (NYSE:AI). In 2023, AI stock is up 93%, which is hard to ignore. If any company has benefitted from the hype surrounding generative AI, it is C3.ai.
However, the stock is now viewed by many analysts as overvalued and due for a correction. Additionally, the short interest in C3.ai’s shares has grown dramatically in recent weeks. Since the end of January, the amount of short interest in AI stock has risen nearly 200%. A quarter (25%) of the company’s stock is now sold short, meaning many traders are betting that the company’s share price will decline.
Online message boards, including WallStreetBets, are rife with chatter that a major short squeeze is coming for AI stock. If that happens, the shares could go parabolic. However, it could also quickly come crashing back to earth, hurting many investors in the process.
Given the potential for a short squeeze and considering that C3.ai might be treated like a meme stock by retail traders, investors should be cautious with the shares.
People who own C3.ai’s shares might want to consider selling them.
Lemonade (NYSE:LMND) is an insurance company that aims to disrupt the stodgy world of automotive and homeowners’ policies using artificial intelligence to enhance and speed up its underwriting systems and services.
The company also uses chatbots to process claims. Lemonade went public in July 2020 amid plenty of hype and excitement. However, since its initial public offering (IPO), the share price has fallen more than 80% due to mounting losses and the fact that the company is bleeding cash, posting a 2022 net loss of $225 million.
The most powerful AI in the world looks unlikely to save Lemonade, whose overall business has been slowing dramatically coming out of the pandemic. The company has forecast that its 2023 insurance premiums will grow by 12% year-over-year to $700 million. That’s a huge slowdown from a 116% annual increase in its premiums in 2022.
Lemonade has also forecast a net loss for this year of $242 million and says it plans to issue $60 million of stock-based compensation to its employees. LMND stock is sour.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.