The artificial intelligence (AI) boom is still continuing. Many leading AI stocks extended their gains in 2024 and attracted new investors. Tech giants have been reporting solid financials while crediting AI.
AI is in its early innings and offers a lot of promise. However, the innovative technology has also created a great deal of speculation. Some corporations are rushing to mention AI efforts with the hopes of keeping their stock prices steady. Successes from some AI stocks can also result in unjustified gains for other companies. Investors may want to steer clear of these AI stocks.
SoundHound AI (SOUN)
SoundHound AI (NASDAQ:SOUN) offers voice AI solutions for business owners. The service can help companies create better customer experiences. It’s similar to giving automated chatbots a voice instead of only text.
The firm allows businesses to save money on costs and scale their efforts. However, the company is burning through a lot of cash and doesn’t have enough revenue to justify its $1.3 billion valuation.
The full-year revenue growth came in at 47% year-over-year (YoY). The growth rate brought the firm’s total revenue to $45.9 million. SoundHound AI reported a net loss of $88.9 million in the full year 2023. It’s an improvement from last year’s $116 million net loss, but these are still high numbers.
The stock has more than doubled year-to-date, but not due to its own merit. Investors rushed to buy shares after Nvidia (NASDAQ:NVDA) revealed it had a small stake in the company. Market participants are now running away from the stock, as it’s down by more than 50% from its all-time high.
C3.ai (AI)
C3.ai (NYSE:AI) is another overvalued AI stock. It hasn’t enjoyed the same love as SoundHound AI, since C3.ai shares are down by 19% year-to-date. However, the stock had one week in February where it surged by more than 40%, so there’s still plenty of speculation for the $2.8 billion firm.
The C3.ai platform helps enterprises develop AI applications. It’s competing with the tech giants and isn’t gaining much market share. Revenue increased by 18% YoY to reach $66.7 million in Q3 FY24. However, net losses inched higher from $63.2 million in Q3 FY23 to $72.6 million in the most recent quarter. Net losses also increased over the nine-month period that ended on January 31.
The stock doesn’t look sustainable. Cash and cash equivalents were cut in half YoY. A corporation is unlikely to generate returns if revenue growth decelerates and losses continue to grow. C3.ai checks both of those boxes and isn’t a good AI stock for long-term investors.
BigBear.ai (BBAI)
BigBear.ai (NYSE:BBAI) offers AI-powered decision intelligence solutions for its clients. The speculative stock’s value more than doubled in roughly two weeks from the end of February to early March. However, shares have given up those gains and are down by roughly 86% from their all-time highs. Shares are down by more than 80% over the past five years as a result of yet another SPAC gone wrong.
The company’s financials resemble a sinking ship rather than a growing company. Revenue only grew by 0.5% YoY to $40.6 million. The AI firm also reported a net loss of $21.3 million. Revenue only ticked up by 0.01% YoY for the full year 2023.
BigBear.ai currently trades at a 1.68 price-to-sales ratio. It’s low for a reason as the company seems several years away from profitability if it ever reaches that milestone. Corporations that are supposed to be in growth mode don’t have as many opportunities to improve their profit margins, especially if revenue growth remains flat.
On the date of publication, Marc Guberti did not hold (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.
