In the sparkling realm of technological advancements, the allure of the artificial intelligence (AI) revolution has dazzled many investors’ eyes. Dreams of building fortunes beckon as forecasts hint at a trillion-dollar AI industry on the horizon. Yet, the phrase AI stocks to sell might be the reality check that halts that gold rush momentum.
2023 has seen AI shine brighter than ever, with chatbots conversing at incredible speeds and image generators crafting pixels to perfection. Consequently, some AI stocks are trading at inflated valuations, teetering on the brink of a downward spiral. Others have ridden the AI wave without a solid business foundation. Moreover, tech behemoths, armed with deep coffers, are now making their presence felt in the sector and the underprepared are bound to falter. Treading with caution might save one from the impending AI stock downfall.
Riding at the forefront of the AI conversation is C3.ai (NYSE:AI). The enterprise-focused firm has witnessed its shares skyrocket by over 150% this year alone. However, beneath its glossy exterior lies a conundrum relating to a steep valuation for a company that continues to bleed cash.
Digging deeper, C3.ai’s journey seems more like a chameleon adapting to the hues of market hype. It started as C3 Energy, but it soon morphed into C3 IoT during the IoT mania and finally settled as C3.ai to align with the AI surge. Though adaptability can be an asset, the uncanny timing of these shifts raises eyebrows.
Furthermore, its financials paint a grim picture. Despite raking in a respectable $267 million in sales for fiscal 2023, the company’s aggressive spending of $183 million on sales and marketing led to securing only a meager $14 million increment from the previous year. To add salt to the wound, a dwindling gross profit and escalating operating losses cast a shadow over its financial health, while its stock trades at roughly 12 times forward sales estimates.
Amid the bleak backdrop of pandemic-induced lockdowns, Snap (NYSE:SNAP) found its groove, reveling in the increased screen time that global stay-at-home mandates ensured. However, in the post-pandemic scenario, the allure of Snapchat has started to wane and many advertisers have shifted their focus toward news sensations, such as TikTok.
Snap’s financials have been anything but rosy. Its second-quarter result sounded the alarm, with an adjusted net loss of $377 million. Moreover, its free cash flow dived, settling at a less-than-ideal $119 million, a massive dip from the previous year’s $147 million. While February showed a glimmer of hope with the announcement of “My AI,” the end product sadly couldn’t match the anticipation it generated.
The road ahead seems fraught with challenges. With TikTok’s charm captivating millennials and Instagram incessantly evolving to cater to advertisers, Snapchat finds itself at a crossroads. Its competition is rife and fiercely innovative, leaving Snap in a precarious position.
Symbotic (NASDAQ:SYM), with its AI-infused robots, has been killing it at the stock market this year. The stock is up more than 250% year-to-date and up over 156% in the past six months. Having gone public in 2022 through a shell company, their recent fiscal performance sings praises, boasting an amazing $311.8 million in sales, marking a 77.6% bump year-over-year.
Yet, there’s a caveat for prudent investors. Despite its glittering top line, the stock remains ensnared in valuation concerns, trading at a towering 32 times trailing twelve-month cash flows and a concerning net loss of $39 million in the recent quarter. Notably, analyst firm William Blair’s Ross Sparenblek waved a flag of caution after Symbotic’s latest earnings, stating that the company’s valuation seems “stretched” and its promising outlook might already be “fully priced in.” So, while AI-driven robotics glistens with promise, investors might want to proceed with prudence.
On the date of publication, Muslim Farooque 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