Artificial intelligence (AI) stocks have become the talk of the town lately, and the hype around them has reached a fever pitch. However, investing in new technologies is not without risks. Here are two popular AI stocks that investors may want to avoid for now.
Nvidia has become the go-to supplier for computer chips that power AI tools, which are computationally intensive. The company’s newest AI chip costs over $10K, giving Nvidia significant pricing power. As a result, its stock has soared over 170% this year. However, Nvidia has a lot of competition in the pipeline, and Taiwan Semiconductor Manufacturing, the sole supplier of Nvidia’s computer chips, is known for increasing its prices on customers. Additionally, Nvidia is extremely overvalued, with a market cap of over $1 trillion. Investors may want to keep the stock on their watchlist for now.
C3.ai, an Enterprise AI Application Software company, sells AI products and implementations to large companies to increase efficiency and save them money. However, it is not making money itself and has only grown revenue by 5% year over year. The company posted a $290 million operating loss on only $267 million in revenue last fiscal year. Despite its broken business model, C3.ai’s stock is up over 200% this year. However, shares now trade at a price-to-sales ratio of 17.75, which would be expensive even if C3.ai was profitable and rapidly growing. Investors should be wary of investing in C3.ai as it has not proven it has a sustainable business model.
