Stocks to sell

Caution! 3 AI Stocks That Will Fail to Deliver on the AI Hype.

Artificial intelligence, or AI, has become the next big thing for technology investors. As traders have gotten tired of past themes such as cryptocurrency and Web 3.0, it was time for a new idea to take hold. And AI has done just that.

Thanks to ChatGPT, people are getting their first real taste of the possibilities of consumer-focused AI products. Other products, such as image generation AI, have also hit the mainstream this year. AI appears to be on the verge of making a major leap in its commercial prospects.

That said, not all companies that ride the AI wave will do so profitability. With any new technology, many companies come along that can ride the hype cycle without necessarily ever converting that into lasting revenues or profitability. Here are three AI-related stocks that have less going for them than it might seem at first glance.

C3.Ai (AI)

Source: shutterstock.com/Below the Sky

Arguably, the best thing C3.ai (NYSE:AI) has nowadays is its ticker symbol. For investors wanting to ride the artificial intelligence wave, AI stock certainly has the right name to garner attention.

However, the hype has arguably gotten ahead of the actual business. C3.ai is involved in artificial intelligence, but not in the way that you might be thinking. C3 offers deep data analysis for industrial purposes such as care and maintenance of factories, refineries, chemical plants and so on. This sort of predictive intelligence can improve industrial efficiency and is worth a lot when employed properly.

But this sort of AI is far removed from the excitement we’ve seen around ChatGPT and other consumer-facing products. Long story short, C3.ai has promising technology, but it’s not what investors might popularly associate with artificial intelligence. And to the extent people are buying AI stock thanks to excitement around ChatGPT, that sentiment is likely misplaced.

Finally, it’s worth noting that C3.ai is currently not growing. In fact, in its recently announced quarterly results, revenues fell 4.5% year-over-year to $67 million. This is simply not that large or successful of a business yet, and it will take more than AI-related enthusiasm for the company to reach profitability.

BuzzFeed (BZFD)

Source: shutterstock.com/Ralf Liebhold

BuzzFeed (NASDAQ:BZFD) is a media company that operates websites such as BuzzFeed News and HuffPost. The company was once viewed as a pioneering firm that had developed a unique voice and appeal with younger readers. However, BuzzFeed’s star has fallen in recent years. The company’s SPAC was not well received, and shares quickly lost most of their value.

In January, however, BuzzFeed shares tripled in a single day. This came on news that the company would start to use artificial intelligence to help in creating some of its content. BuzzFeed tends to run lots of viral content involving lists and quizzes. It’s possible that employing AI could help BuzzFeed with some of its content needs.

That said, this seems more like a publicity stunt than a real change in business strategy. Ultimately, BuzzFeed needs to create engaging content to build and broaden its brands. Cheap AI-influenced content is unlikely to move the needle on that front. BuzzFeed is running sizable operating losses, and the company faces significant challenges in trying to reach profitability going forward. The company’s AI efforts are unlikely to meaningfully change the story.

SoundHound AI (SOUN)

Source: Tada Images / Shutterstock

SoundHound AI (NASDAQ:SOUN) is a company focused on AI technologies for voice applications. Artificially generated voices have improved greatly in quality in recent years, which starts to unlock a significant number of potential commercial uses.

SoundHound AI has not yet managed to capture a large part of that potential market, however. It generated just $31 million of revenues in 2022, which is not a large number for a company with a $490 million market capitalization.

Also, of note, SoundHound AI announced that it would be restructuring the business this year while lowering investments in some product verticals. In doing so, SoundHound AI hopes to cut operating costs 40% while focusing more of its resources to its restaurant industry voice AI product. SOUN stock jumped thanks to the broader wave of interest in AI stocks. However, as SoundHound has a small revenue base and has been cutting costs, it doesn’t appear to be at an inflection point in terms of product adoption.

On the date of publication, Ian Bezek 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.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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