Almost all artificial intelligence (AI) stocks have been hot in 2023 as speculation about the technology continues to drive hype around the businesses involved in AI development. New AI technology such as ChatGPT is indeed revolutionary, and people are still wondering what the implications are going forward since it can cut down on a lot of white-collar work and boost productivity. I also believe that AI is the answer to the population decline that is on the horizon. Eventually, most work will be done or assisted by AI in some form.
However, I believe Wall Street might be taking things too far with certain AI stocks. We are still in the experimental phase with many AI technologies, and since it is not conscious, human involvement will always be needed with more creative tasks.
In short, it won’t solve all our problems anytime soon. A good example is the fact that we haven’t seen any groundbreaking discoveries or inventions made by AI because most of what it does has been learned through emulating what humans have already done millions of times.
That’s still significant as it can cut down on a lot of work. But do these AI companies have the pricing power to replace real workers and rake in tens of billions in profits? Not anytime soon since the industries that are most impacted by machine-learning AI platforms are simply not big enough. And AI is not smart enough to flawlessly do most work.
With that in mind, I believe the following three AI stocks are a little too overhyped:
Nvidia (NASDAQ:NVDA) is the hottest AI stock there is right now. The amount of capital flowing into this company because of its advantage when it comes to AI chips is too much to make this a comfortable buy at this range. $270.40 per share is reaching 2021 levels in terms of valuation, while sales and profits have been trending down for the past few quarters. Trailing-twelve-month profits are less than half what it was last year, while sales declined by 21% in the latest reported quarter.
Even if Nvidia maintains its dominance in the AI chip market, it’s simply too expensive in this range. The speculative AI chip market depends entirely on investments from other companies experimenting with machine learning. These companies generate little to no revenue, and their valuations are bloated; thus, I wouldn’t rely on sales to these companies to estimate the future potential of Nvidia.
Furthermore, it’s a fabless chip maker, and I believe competitors like Advanced Micro Devices (NASDAQ:AMD) won’t have to work too hard to start taking their own pie of the AI market share. Chip makers like AMD and Taiwan Semiconductor (NYSE:TSM) currently offer much better value and financials. There is just too much speculation priced in with NVDA.
Buzzfeed (NASDAQ:BZFD) isn’t directly an AI company, but it uses AI to generate content. It is likely heading toward bankruptcy in the coming months as it continues to burn cash. It had losses of $201.3 million compared to sales of $436.7 million for all of 2022. For Q1 2023, it expects to be $61-67 million in revenue at midpoint, a substantial decline from $92 million last year.
With so much in losses, it also only has $56 million in cash. Additionally, the company reported that as of March 10, 2023, the majority of its cash was held at Silicon Valley Bank.”
Naturally, the company is desperate to cut losses, and Buzzfeed recently announced that it would shut down its Buzzfeed news segment due to a lack of reader interest and instead focus on the HuffPost. Although that’s a good business decision that’ll save more money, the HuffPost is also a loss-making segment and investing more into it is unlikely to turn things around for Buzzfeed just yet.
Furthermore, it can’t use AI to generate content for HuffPost. As a writer, I can confidently say that generating AI-written content for subjects requiring knowledge of current events and data simply does not work. At least not when you desire quality and factuality.
Buzzfeed is also trading below the $1 Nasdaq requirement. That means the company will likely have to do a reverse split if it wishes to keep raising cash through share dilution.
C3.ai (NYSE:AI) is an AI software company offering a suite of apps for various industries such as manufacturing, healthcare, telecom, finance, and energy. With the growing interest in AI in these sectors, it is a promising company indeed — but I believe that the valuation has gone too far with this company.
I believe selling AI stock right now is a good idea, as you can grab it for cheaper at a later price. Its price-to-sales ratio of 7x is ranked worse than 81.28% of companies in the software industry, and Wolfie Research set the price target to $14, citing significant risks to fiscal 2024 revenue growth.
On the date of publication, Omor Ibne Ehsan 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.