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artificial intelligence (A.I.) The boom is still continuing. Many major AI stocks extended their gains in 2024, attracting new investors. Big tech companies are giving solid financial reporting while giving credit to AI.
AI is in its infancy and holds a lot of promise. However, this innovative technology has also generated a lot of speculation. Some companies have rushed to mention AI efforts in an effort to stabilize stock prices. The success of some AI stocks could also unfairly benefit other companies. Investors may want to avoid these AI stocks.
Soundhound AI (SOUN)
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Soundhound AI (NASDAQ:early clouds) provides voice AI solutions for business owners. This service helps businesses create a better customer experience. This is similar to giving an automated chatbot audio instead of just text.
The company enables companies to save money and scale their efforts. But the company is burning through large amounts of cash and isn’t generating enough revenue to justify its $1.3 billion valuation.
Full-year revenue growth was 47% year over year (YoY). This growth rate brought the company’s total revenue to his $45.9 million. SoundHound AI reported a net loss of $88.9 million for the full year 2023. This is an improvement from his $116 million net loss last year, but it’s still a high number.
The stock has more than doubled since the beginning of the year, but not on its own merits.Investors then rushed to buy the stock. Nvidia (NASDAQ:NVDA) revealed that it owns a small amount of stock in the company. Market participants are currently fleeing the stock price, as it is down more than 50% from its all-time high.
C3.ai (AI)
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C3.ai (New York Stock Exchange:A.I.) is another overvalued AI stock. C3.ai’s stock price is down 19% since the beginning of the year, so it’s not as popular as SoundHound AI. But there’s still a lot of speculation surrounding the $2.8 billion company, as there was a week in February when the stock soared more than 40%.
The C3.ai platform helps enterprises develop AI applications. It competes with big tech companies and hasn’t gained much market share. Revenue for the third quarter of fiscal 2024 reached his $66.7 million, an 18% increase year-over-year. However, the net loss inched up from $63.2 million in Q3 FY23 to $72.6 million in the most recent quarter. Net losses also increased in the nine months ended January 31st.
The stock price doesn’t seem sustainable. Cash and cash equivalents halved compared to the same period last year. If revenue growth slows and losses continue to grow, a company is less likely to generate profits. C3.ai ticks both of these boxes, making it not a good AI stock for long-term investors.
BigBear.ai (BBAI)
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BigBear.ai (New York Stock Exchange:BBAI) provides AI-powered decision intelligence solutions to its clients. The value of speculative stocks more than doubled in about two weeks from the end of February to the beginning of March. However, the stock price has given up these gains and is now down about 86% from its all-time high. The stock has fallen more than 80% over the past five years as yet another failed SPAC.
The company’s financial situation resembles a sinking ship more than a growing company. Sales increased only 0.5% from the previous year to $40.6 million. The AI company also reported a net loss of $21.3 million. Full-year 2023 revenue increased by only 0.01% year-on-year.
BigBear.ai is currently trading at a price to sales ratio of 1.68. There’s a reason this is low, and it will likely take several years for the company to reach profitability. Companies that are supposed to be in growth mode don’t have as many opportunities to improve their profit margins, especially if revenue growth is flat.
On the date of publication, Mark Guberti did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com Publishing Guidelines.
