The explosive development of the synthetic intelligence (AI) market, which had largely been pushed by the feverish enlargement of generative AI platforms like OpenAI’s ChatGPT, lit a fireplace below many tech shares over the previous yr.
A few of these rallies have been justified. Nvidia‘s inventory deserved to soar as a result of its chips have been required to course of high-end AI duties. Microsoft‘s large funding in OpenAI and the mixing of its AI instruments into its cloud-based companies additionally made it a fantastic play on that secular development.
However past Nvidia and Microsoft, numerous tech shares should not have been lifted with the rising AI tide. I imagine C3.ai (NYSE: AI), Palantir (NYSE: PLTR), and SoundHound AI (NASDAQ: SOUN) are three such shares that would stumble in 2024.
What’s fallacious with C3.ai?
C3.ai develops AI algorithms that may be plugged into an organization’s present software program to speed up and automate sure duties. That technique sounds promising, however C3 nonetheless generates about 30% of its income from a three way partnership with Baker Hughes that’s set to run out in fiscal 2025 (which ends in April 2025).
If C3 would not renew that deal, its income will drop off a cliff. It nonetheless faces stiff competitors from comparable AI companies which are instantly built-in into Amazon Net Companies (AWS), Microsoft’s Azure, and different main cloud platforms, whereas robotic course of automation (RPA) platforms like UiPath and generative AI companies like ChatGPT may disrupt its long-term development.
C3’s income rose a mere 6% in fiscal 2023, in comparison with its 38% development in fiscal 2022. It is began to supply usage-based plans (versus its authentic subscription plans) to achieve extra prospects on this harder macro setting, and it is rolling out new instruments for generative AI platforms to remain related within the AI race. However these methods will preserve its backside line within the crimson for the foreseeable future — and its inventory would not look low-cost at 12 instances this yr’s gross sales.
What’s fallacious with Palantir?
Palantir’s information mining and analytics platform gathers data from disparate sources to assist its shoppers make data-driven selections. Its Gotham platform serves authorities prospects, whereas its Foundry platform supplies comparable instruments for giant business prospects. The U.S. navy and most U.S. authorities companies presently use Gotham to collect intelligence.
After its public debut in 2020, Palantir claimed it may develop its annual income by not less than 30% by 2025. Its income rose 47% in 2020 and 41% in 2021, however solely grew 24% in 2022. For 2023, it expects simply 16% income development.
Palantir blames that slowdown on the macro headwinds for Foundry and the uneven timing of Gotham’s authorities contracts. Nevertheless, it is also going through competitors from comparable information mining platforms throughout the business market in addition to internally developed platforms throughout the U.S. authorities.
On the intense facet, Palantir has stayed worthwhile over the previous yr because it reined in its spending, and it initiated a $1 billion buyback plan in August. These methods are accountable, however additionally they counsel Palantir’s enterprise is maturing — and its inventory nonetheless seems dear at 60 instances ahead earnings and 14 instances subsequent yr’s gross sales.
What’s fallacious with SoundHound AI?
SoundHound AI supplies audio and speech recognition companies and apps for a variety of industries. Its versatile companies are interesting to firms that need to add audio recognition companies to their merchandise with out tethering themselves to a tech big like Microsoft or Alphabet‘s Google.
SoundHound continues to be rising like a weed. Its income rose 47% in 2022 and it expects 44-57% development in 2023. However earlier than it went public by merging with a particular goal acquisition firm (SPAC) in 2022, it informed traders it may develop its income by 41% in 2022 and a whopping 245% in 2023 because it scaled up its enterprise.
SoundHound blamed that slowdown on the powerful macro setting, however it’s clearly struggling to broaden its enterprise within the shadow of bigger speech recognition platforms like Microsoft’s Nuance and Google Assistant. It additionally has buyer focus issues: Greater than two-thirds of its income got here from simply three prospects in 2022.
SoundHound would possibly look fairly valued at eight instances subsequent yr’s gross sales, however it’s nonetheless deeply unprofitable and it ended its newest quarter with a excessive debt-to-equity ratio of 4.6. These obtrusive flaws may all set it up for a steep drop in 2024.
Do you have to make investments $1,000 in C3.ai proper now?
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John Mackey, former CEO of Entire Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Suzanne Frey, an govt at Alphabet, is a member of The Motley Idiot’s board of administrators. Leo Sun has positions in Amazon. The Motley Idiot has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, Palantir Applied sciences, and UiPath. The Motley Idiot recommends C3.ai. The Motley Idiot has a disclosure policy.
These 3 Overrated Artificial Intelligence (AI) Stocks Could Crash in 2024 was initially printed by The Motley Idiot
