Stocks to sell

Stocks to Sell: 3 AI ‘Pretenders’ Set to Crash and Burn

It may seem contrarian to say artificial intelligence (AI) is overvalued. However, perception plays a key role.

Many companies with skyrocketing share values over the last two years can thank investor misconceptions about the true added value of AI to a company’s operations. As a result, a few AI stocks to sell are potentially disingenuous.

Thus, the number one thing that investors should understand about AI is the way it works. In most cases, whether a chatbot or a generative model, the AI is a series of probabilistic calculations trying to determine the likelihood of two data points being related and then repeating this series of calculations as many times as is necessary to go through its whole data source to answer the question or create an image that is an average of several images together to represent what the user requested.

Are you still with me?

This means, that AI, is fundamentally not intelligent or creative. It’s simply an extremely sharp algorithm for searching an ocean of data for the potentially correct answer. Investors should be aware of this before rushing to buy a company’s shares due to their announcement of an AI product. Let’s examine three ‘pretenders’ set to crash and burn.

Equinix (EQIX)

corporate building with Equinix (EQIX) logo on it

Source: Ken Wolter / Shutterstock.com

As one of the world’s largest data center infrastructure providers, Equinix (NASDAQ:EQIX) has received a lot of attention for its role in supporting AI proliferation.

Yet, flat performance over the last year gives a clue as to the real value behind EQIX stock. While other AI-related companies have all seen feverish growth, EQIX’s AI branding doesn’t command the same excitement. This comes from the reality of its business model, which is to provide the infrastructure and facilities for data center operations.

Whether or not these data centers are used for cloud computing, AI hosting or any other technical application doesn’t change the value of the property or buildings that EQIX holds as assets. Furthermore, the high intensity of AI-related data processing means EQIX’s data centers will have to use more energy. So, the centers will run harder calculations that wear out their computers faster, whether a graphics processing unit (GPU) or central processing unit (CPU). Therefore, EQIX is an AI stock to sell due to its mostly tangential relationship with AI technology itself.

Rockwell Automation (ROK)

Rockwell Automation sign is seen in Cambridge, On, Canada. ROK stock.

Source: JHVEPhoto / Shutterstock

Another AI stock with a somewhat vague approach, Rockwell Automation (NYSE:ROK) hasn’t benefitted from the AI boom as expected. Despite the company’s focus on digitalization and automating industrial processes, its major AI application – FactoryTalk Analytics LogixAI – has not performed as a value driver.

Unlike the major players in the AI race, ROK’s AI has not debuted as a novel proprietary technology. Rather, not much information exists about the way the firm developed this AI or the number of its customers who have requested it. Beyond this unremarkable software product, ROK’s financial metrics all saw a decline in its first-quarter earnings report for 2024.

With revenue down 6.57% year-over-year (YOY) and net income down 11.36%, Rockwell Automation’s stock has sunk a serious 20% over the last 12 months. As such, investors may want to consider ROK among the AI stocks to sell as it has already missed the boat when it comes to the AI hype.

Snap (SNAP)

The Snapchat (SNAP) and Instagram apps on displayed on an iPhone, which sits on a gray background.

Source: BigTunaOnline / Shutterstock

Once a prominent social media stock, Snap (NASDAQ:SNAP) has fallen far. The company has repeatedly attempted to apply AI features to its app although they haven’t added any significant value. Also, its permanent chatbot has little value for most of the people who still use the app to send each other pictures.

Another one of its AI features released is Snapchat Dreams. This generative AI supposedly takes your saved pictures and turns them into a quickly edited version of you wearing some sort of costume or in a new environment. While this feature sounds interesting on paper, it does not yield any particularly useful results. The first “pack” of eight photos is free, but additional packs cost one dollar each as an in-app purchase.

Thus, it’s no wonder Snap stock has struggled as it pours billions into licensing chatbots and generative software just to provide features that do little to entice user spending.

On the date of publication, Viktor Zarev 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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Viktor Zarev is a scientist, researcher, and writer specializing in explaining the complex world of technology stocks through dedication to accuracy and understanding.

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