Even though AI stocks have had a remarkable year in 2023, there are a few shares that investors should steer clear of. Whether it’s selling in December or earlier, it’s crucial to dispose of these stocks as quickly as possible.
While some of these stocks have been highly promoted and have shown strong performance, all three have ultimately failed to meet expectations.
Finding smaller AI stocks may seem appealing, as they could potentially be hidden gems. However, I strongly discourage investors from considering two of the names on this list at this point.
Upstart Holdings (NASDAQ:UPST) is one of the riskiest AI stocks available. The company has implemented AI into its lending platforms, which has garnered attention. However, a significant portion of its shares, almost 42%, are currently being sold short. This indicates that many investors are betting on the further decline of Upstart Holdings.
The reason for my skepticism is simple: I don’t believe in the promises of using AI in the lending process. It’s an illusion to think that an algorithm can accurately evaluate the complex decision-making process involved. This situation is reminiscent of what occurred with home-buying algorithms not too long ago. They were marketed as a superior alternative to human-centered approaches but failed to predict a rise in rates accurately, resulting in substantial losses.
The field of lending is still underdeveloped when it comes to the application of AI. Upstart Holdings experienced a 14% decrease in revenue in the most recent period, and its losses surpassed expectations. This serves as a perfect example of why investors should maintain a skeptical outlook on the company and its potential.
C3.ai (NYSE:AI) is an enterprise software company that utilizes AI. It was initially recognized as a leader in this aspect, and its stock skyrocketed in 2023 due to the immense potential of AI in various industries.
The share price soared from $11 to $44 within a few months, peaking in early August. Currently, the price has fallen below $30. Similar to Upstart Holdings, C3.ai has also faced weak investor sentiment, as evidenced by nearly 30% of its float being sold short.
The reason behind investors’ skepticism is the company’s consistent disappointments. The results it posted in September contributed significantly to the prevailing skepticism. C3.ai had initially projected non-GAAP profitability by the end of the current fiscal year, but CEO Thomas Siebel retracted that promise when the company revealed earnings in early September.
This stock serves as a prime example of why investors have grown wary of AI. Until C3.ai can deliver on its profitability promises, it does not warrant investment.
Veritone (NASDAQ:VERI) is a company that promises to cater to everyone’s needs but fails to fulfill any. It dubs itself as a generative AI company that offers services and products applicable to all. However, the company’s mission statement raises eyebrows, as it is brimming with buzzwords like empowerment, democratization, and more vibrant opportunities for AI users worldwide.
However, when it comes to results, Veritone falls short. In the third quarter, the company experienced a 6% decline in revenue, reaching $35.1 million. Software revenue, which constitutes a significant portion of its business, amounted to $20.4 million during the period. However, software revenue plummeted by 29% that quarter, which should raise concerns among investors.
While there have been some positive aspects, such as strong bookings figures, overall, Veritone fails to counterbalance the negatives. Most notably, the company’s net loss spiked from $4.9 million to $20.9 million year-over-year.
As a seasoned journalist, it is evident that AI stocks can be a gamble. It’s important for investors to thoroughly evaluate the potential risks and rewards associated with these stocks. While the allure of smaller AI companies may be tempting, caution should be exercised, particularly with Upstart Holdings, C3.ai, and Veritone. These companies have yet to meet investors’ expectations and deliver the desired results.
In conclusion, while AI stocks have seen considerable success in the year 2023, it is crucial to be selective and move away from underperforming shares. Selling these stocks, such as Upstart Holdings, C3.ai, and Veritone, in December or even earlier, might be the best strategy to protect investors’ portfolios. It’s essential to approach AI investments with a critical eye and carefully evaluate each company’s potential for success in the evolving world of artificial intelligence.
