The tech market is being dominated by AI, which has suddenly become a lucrative trend.
It is enormous. Due to ChatGPT’s success and intense competition, it is attracting the interest of investors. The AI market is expected to skyrocket to a staggering $2 trillion by 2030.
Alphabet (GOOGL)’s CEO, Sundar Pichai, warned of its problems, stating that “society will need to prepare for rapid advancements in artificial intelligence that will affect every product across every company.” It is imperative to avoid certain tech stocks that may already be facing negative consequences.
Now, I’ll list three AI-related stocks that should be either avoided or sold. Let’s have a look:
Affirm Holdings Inc (AFRM)
Our first stock to avoid is Affirm Holdings (AFRM), a fintech firm specializing in “buy now, pay later” services, and it faces significant hurdles. Despite an initial surge in growth facilitated by AFRM’s partnership with Peloton (PTON), there has been a struggle to sustain momentum. AFRM’s most recent quarter saw results that confirmed its lack of profitability. Also, being a consumer credit business, AFRM will likely experience mounting challenges amid a dim economic outlook.
AFRM’s stock is up year-to-date by 93.74%; you’ll notice a trend where, after seeing a YTD gain, you’ll see negative numbers from there on. For instance, AFRM has an ROE (return on equity) of -37.97% and a 3.65 beta, which indicates how prone the stock is to volatility. AFRM has a TTM revenue of $1.51 billion, yet it lost $965 million thanks to its -64.12% profit margin. AFRM shows negative year-over-year growth in net income (-276.21%), EPS (-263.16%), and net profit margin (-250.36%). With a 10-day average volume of roughly 24 million shares, AFRM has a median price target of $16, with a high of $20 and a low of $6; this suggests a potential -68% drop from its current price. AFRM has 10 hold ratings and 3 sell ratings.
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C3.ai Inc (AI)
C3.ai (AI) may have a catchy ticker symbol that aligns with the market’s enthusiasm for artificial intelligence. Still, there really isn’t much else to say about AI when it comes to considering it for our portfolios. AI is slow-moving, unprofitable, and lacks the potential to benefit from the current excitement surrounding consumer-facing AI. It isn’t certain that C3.ai will capitalize on the opportunity, making it a stock to avoid; it is largely inflated at this point, and, unfortunately, many of us were late to the rally.
AI’s stock is up year-to-date by an insane 285.52%, and the case for it being overvalued is an easy one to make when looking at the negative numbers. AI has a 2.61 beta and an ROE of -28.02% and shows $266 million in TTM revenue, from which it lost $268 million thanks to its crazy -100.77% profit margin. AI shows negative year-over-year growth in net income (-11.19%), net profit margin (-11.05%), and operating income (-29.65%). With a 10-day average trading volume of roughly 52 million shares, AI has a median price target of $23.50, with a high of $50 and a low of $14, suggesting the potential for a price decrease anywhere from -45% to -67%. AI has 6 buy ratings and 4 hold ratings.
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Palantir Technologies Inc (PLTR)
Palantir Technologies Inc. (PLTR), a black-box consulting company, has been scrutinized by The Bear Cave for allegedly posing as an AI powerhouse while primarily functioning as an overhyped data consultant. Despite notable contracts, PTLR‘s lack of innovative work raises concerns. The current valuation of PLTR stock at nearly 15 times revenues and 68 times forward earnings is high for a data management and consulting company. Without PLTR’s utilization of impressive AI applications, however, the recent 90% stock gain is expected to diminish rapidly.
PLTR isn’t much different. It’s up year-to-date by a wild 149.07% but has a negative ROE of -10.04% and a risky 2.84 beta. PLTR showed TTM revenue of $1.98 billion and lost $225 million on its -12.87% profit margin. Clearly overvalued, PLTR is a stock that we would’ve been wise to grab a part of several months ago, much like AFRM and AI; this all happened so damn fast. With a negative cash flow of -$423.74 million and a whopping 10-day average trading volume of 120.48 million shares (people are on to this one), PLTR has a median price target of $8.25, with a high of $18 and a low of $5. This new range for PLTR indicates a downside of anywhere from -48% to -69%. PLTR has 6 hold ratings and 7 sell ratings.
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