Artificial intelligence is the talk of the town right now. Naturally, many stocks in the AI space have seen valuations grow, as productivity benefits flow downstream. The higher demand that corresponds to these benefits creates greater demand, and an upward spiral for investors. Indeed, the rally we’ve seen in many AI stocks is not unjustified.

However, one has to consider that this rally have have gotten ahead of itself. Many AI companies are now trading at exorbitant prices, and may be far too speculative for most investors. Now, some might argue that strong momentum may be enough to justify an investment in certain companies. However, I think the upside potential in many big-name AI stocks is likely already priced in at current levels.

Accordingly, for those looking for sustainable upside potential without the hype, there are a few hidden gem stocks to buy. These companies generally carry less downside risk, while also providing plenty of upside potential. Once more Wall Street capital starts flowing into these companies, investors stand to reap the benefits. 

Overhyped Stock to Sell: Nvidia (NVDA)

I think it’s fair to say that Nvidia (NASDAQ:NVDA) has been the largest beneficiary of the AI rally. Accordingly, NVDA stock is now changing hands at a price-to-earnings ratio of 246 times, worse than 95.5% of its semiconductor peers.

Yes, I know that Nvidia’s expected earnings growth is astronomical, but so is its price. The stock is currently priced for perfection, and almost every analyst that puts a price target on this stock prophesies by default that Nvidia will dominate the AI sector with its chips.

Even if AI dominates discussion for another decade or two, I think it would still be presumptuous to assume Nvidia would be the only player in this sector. Advanced Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC) are pouring billions into AI chips research. And, as Reuters stated just last month, chips from AMD “…are about 80% as fast as those from Nvidia…with a future path to matching their performance, according [to] a Friday report by an AI software firm.”

Many on Wall Street completely overlook the competition that’s starting to heat up in this space. This is the biggest reason I’d take any estimates about Nvidia’s earnings with a spoonful of salt. Thus, I think NVDA stock is a hot potato that’s become too hot to hold, let alone grab, right now. It’s certainly one of the overhyped stocks to sell, in my books.

Hidden-Gem Stock: Nordic Semiconductor (NDCVF)

Nordic Semiconductor (OTCMKTS:NDCVF) is a great semiconductor alternative to Nvidia, and it’ll give you a much better bang for your buck at its current entry point. The company designs and supplies low-power wireless communication solutions for the Internet of Things (IoT) sector. Nordic offers products for Bluetooth Low Energy, Bluetooth Mesh, Thread, Zigbee, Cellular IoT, and Wi-Fi, enabling various applications such as home automation, smart lighting, sports, fitness, and healthcare, among others. The company also has ties to the AI sector, providing edge machine-learning capabilities for its wireless devices.

Currently, the stock seems to be bottoming out after a 70% fall from its peak. At the time of writing, NDCVF stock changes hands at a trailing price-to-earnings ratio of 37-times. That’s much better than many overhyped stocks in the market. Notably, this stock trades at this multiple because analysts expect a 13% year-over-year revenue decline this year. However, the company is projected to grow its revenue at a clip of roughly 20% each year, over the next two years. I also expect profits to bounce back rapidly, as the IoT space is set to benefit from continuously increasing demand.

All things considered, NDCVF stock appears to be a much better bet right now than Nvidia.

Overhyped Stock to Sell: C3.ai (AI)

C3.ai (NYSE:AI) is another overhyped stock riding high on the surge in interest around AI. If you’ve been reading my articles, you may notice I included both picks in a similar column last month. It’s no coincidence, and I feel C3.ai is a must-sell for various reasons.

Most importantly, this company does not bring innovative or useful products to the table. Without a client base that meaningfully adopts C3.ai’s products, the company is left to provide investors with many buzzwords, cool graphics, press releases around partnerships. But for those willing to dig deeper, you’ll find that none of these partnerships are significant enough to give this company the valuation it has today.

I also would bet that most investors in this company probably can’t even name a product or a service C3.ai offers. There’s nothing unique here, as many companies do the same thing as C3.ai. However, I’m concerned about the quality of competitors, and the breadth of the other offerings being brought to the table.

Another worrisome fact to consider is that 45% of C3.ai’s revenue comes from Baker Hughes (NASDAQ:BKR). Spruce Point reported in its research that “…the partnership at best will cease to exist in FY 25, or at worst be modified with even lower revenue, or cancelled prior to FY 25.” That’s just the tip of the iceberg, and I won’t be surprised if Hindenburg takes a hit at this company next.

Hidden-Gem Stock: Karooooo (KARO)

Karooooo (NASDAQ:KARO) offers a much better entry point than C3.ai, and is a notable comparable as it operates in a similar field. This company provides AI-powered solutions for many businesses without many of the headwinds that investors in C3.ai have to consider. The most obvious one is its valuation, as the stock changes hands at a forward price-to-earnings ratio of 20-times. Right now, investors can grab one share for a little under $25 apiece.

Another obvious advantage Karooooo provides over C3.ai is its financials. The company is providing very strong growth, while C3.ai’s growth is negligible. The company reported Q1 results on Jul 19, with revenue surging almost 25% year-over-year and very strong profit growth supplementing an impressive cash position. What really makes me charmed about this AI company is its forward dividend yield of 14%. This, along with that green balance sheet, makes KARO stock nothing short of a steal.

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.