3 AI Stocks That Are Losing Big Investors
As the artificial intelligence (AI) trade appears to be fading, big investors are starting to abandon certain AI stocks. The recent signals from the U.S. Federal Reserve regarding interest rate hikes have significantly impacted the technology sector, particularly companies focused on AI. This has led hedge funds and other institutional investors, including college endowments, to reassess their investments in AI-focused companies. While some AI companies are expected to be long-term winners, many are now slipping lower in the market and are unlikely to survive.
As the AI market matures, it is crucial for investors to carefully evaluate and differentiate between good and bad AI investments. Failure to do so could result in portfolio losses. Here are three AI stocks that have witnessed big investors running for the exit.
Baidu, the Chinese technology giant, recently announced its generative AI chatbot called Ernie Bot, which supposedly outperformed OpenAI’s leading chatbots on various tasks. However, Baidu’s claims have yet to be independently verified. The company’s credibility regarding AI has been questioned following a disappointing launch of Ernie Bot earlier this year. The launch, which showed a pre-recorded video instead of a live demonstration, left investors and developers unimpressed. Consequently, Baidu, and even the entire tech sector in China, is perceived to lag behind the U.S. in terms of chatbot technology. Consequently, many hedge funds and investors have been selling Baidu (BIDU) stock. Over the past year, the company’s share price has fallen nearly 10% and is currently trading 42% lower than it was five years ago. Due to this lackluster performance, it may be wise to avoid investing in Baidu as an AI stock.
Another AI stock facing challenges is C3.ai, a U.S. artificial intelligence firm. While the company’s stock price has nearly tripled this year, there are underlying issues that investors should be aware of. C3.ai has attracted a substantial short position from traders who are betting on the stock’s decline. Currently, 30% of the company’s outstanding shares are shorted, indicating expectations of a collapse following its significant rally over the past six months. The heavy short position has also sparked speculation about a potential short squeeze among retail investors. While this scenario could briefly drive the share price even higher, it is likely to result in a subsequent drop as investors take profits and sell the stock. This presents a risky situation for investors and reinforces the notion that C3.ai (AI) is a stock to avoid.
Similarly, Upstart Holdings, a company that uses AI to assess borrowers’ creditworthiness before granting loans, has witnessed a surge in its stock price this year. However, a closer look reveals that the company’s share price is less impressive over an extended period. Despite the significant increase this year, Upstart (UPST) stock is trading 16% lower than it was a year ago. Furthermore, it has experienced a 15% decline since mid-June as enthusiasm for AI-related companies diminishes. This meteoric rise in stock price is speculated to be a result of a short squeeze. Moreover, professional investors remain skeptical of Upstart’s business model, as it deviates from traditional methods of evaluating creditworthiness, such as relying on FICO scores and instead focuses on unconventional metrics like grade point averages and standardized test scores. Given these factors, it may be time to consider selling Upstart stock.
As the AI industry continues to evolve, it is imperative for investors to conduct thorough research and exercise caution when selecting AI stocks for their portfolios. It is crucial to differentiate between promising long-term prospects and those that are unlikely to thrive. By being discerning, investors can avoid potential losses and position themselves for success in the ever-changing AI landscape.
