Venturing into the intricate world of artificial intelligence (AI) stocks can be an intimidating task. While some firms are spearheading innovative breakthroughs, other doomed are falling behind. This article will cast a spotlight on three such stocks that are currently facing challenges, making them less appealing to investors.
These companies, while notable in the tech sector, are wrestling with significant obstacles that are eroding their competitive advantage. The problems they face range from dependency on a limited customer base to risky investment tactics and delayed technological progress, all of which could potentially impede their future growth.
As we delve into these doomed AI stocks, we’ll illuminate the reasons behind their struggles and what might be on the horizon. Remember that in the realm of investing, being cognizant of potential pitfalls is just as crucial as spotting promising opportunities.
C3.ai (NYSE:AI) has been in the spotlight for years. However, recently it has been in the spotlight for the wrong reasons, one of the biggest being concentration risk. Concentration risk means that a large portion of the stock’s revenue comes from a small number of customers.
This concentration risk makes C3.ai one of the doomed AI stocks. Its initial problem is that it shows its revenues aren’t growing fast enough to a level we’d expect from a tech business. Additionally, C3.ai is particularly risky as any potential downturn in the market will have it feeling a strong pinch.
Looking at the company’s fundamentals, it’s clearly struggling. Sales only grew 0.10% quarter-over-quarter. At present, it’s also considerably overvalued at just a notch below its 52 week high. Overall, best to avoid this stock.
MicroStrategy (NASDAQ:MSTR) is another one of those doomed AI stocks – but for a different reason. The MSTR stock’s key risk factor is that it holds a huge amount of Bitcoin (BTC-USD) on its books. Personal feelings on digital gold aside, it’s important to understand the correlation risk between BTC and MSTR stock.
If Bitcoin dips, so will MSTR’s book value and a major source of potential liquidity. Due to how much BTC is on the company’s balance sheet and its positive correlation, buying the stock is akin to buying Bitcoin. But if one was bullish on Bitcoin why not simply buy the coin itself? Investors would get all the potential upside of the coin without taking a risky bet on a volatile tech stock. Investors may see MSTR as a way to bet big on both AI as well as BTC, but it’s also important to understand that the company-specific, competitive, market variables amplify its potential risk and reward. Due to more things being able to go wrong with the investment, it doesn’t amplify both ends proportionally.
Like most AI stocks that were caught up in the hype this year, MSTR stock might be encroaching into bubble territory. It’s up 218.46% year to date and 125.73% over the past year. Due to the cooling of inflation and the implied easing of interest rates, such a risky bet may be justified – or it may blow up in your face.
Intel (NASDAQ:INTC) is a laggard in the AI and chip industry, for the tech stock rally this year as well as competitively. While many AI stocks in the market break new 52-week highs, the chip maker is down 10.18% over the past year.
The decline in Intel’s share price might partially be chalked up to opportunity cost. Nvidia (NASDAQ:NVDA) reached a historic trillion-dollar valuation this year, and many investors were quick to jump on board that rally. FOMO-driven investors rode Nvidia on a high to sell at a higher high, while Intel was left behind.
There are fundamental differences between the stocks too. Nvidia posted record earnings, while Intel recently reported a $2,857 million loss. Although analysts predict that Intel will see a 340.66% lift in its EPS next year, it simply doesn’t have the same kind of competitive positioning that Nvidia does in the AI and chip-making business. Once considered a close rival, Intel is now far behind. It will take a miracle few years to turn itself around, which makes it one of those doomed AI stocks we can all avoid.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.