Risky AI Stocks to Avoid: Recursion Pharma & C3.ai Failing to Meet Investor Expectations
As the artificial intelligence (AI) industry continues to gain momentum, investors are eager to identify promising AI stocks. However, not all companies in this sector live up to the hype. Two stocks, in particular, have failed to deliver on investor expectations and may not be the best long-term investments: Recursion Pharmaceuticals and C3.ai.
Recursion Pharmaceuticals, a biotech company, went relatively unnoticed until its announcement in July. News broke that tech giant Nvidia had invested $50 million in Recursion, igniting excitement in the healthcare stock. The collaboration between the two companies aimed to revolutionize drug discovery through AI-enabled solutions.
Following the announcement, Recursion’s stock soared, with gains surpassing 100% at one point. However, as the initial hype surrounding AI subsided, the stock price retreated, currently sitting at a negative 4% for the year. Recursion Pharmaceuticals, still a clinical-stage drugmaker with no approved products, faces high volatility and uncertainty.
Financially, Recursion has experienced significant losses, incurring $260 million in the last 12 months. Its revenue, mainly driven by collaborations, remains below $50 million. Given these circumstances, Recursion Pharmaceuticals is an extremely risky investment, particularly for conservative investors who prioritize stability.
C3.ai, on the other hand, appears to be a more obvious choice for AI investment since the company exclusively focuses on AI. Despite recent struggles, the stock has seen an overall gain of over 120% since the beginning of the year. However, investors may have set overly high expectations for C3.ai’s growth prospects.
Disappointingly, the company’s fiscal 2024 first-quarter results showed only an 11% year-over-year increase in revenue, reaching $72.4 million. CEO Thomas Siebel claims C3.ai is gaining traction with its enterprise AI applications, including C3 generative AI. However, the company’s growth has been underwhelming, and next quarter’s revenue guidance of $72 million to $76.5 million falls far short of investors’ anticipated growth.
Another concern is C3.ai’s decision to delay achieving positive adjusted earnings, previously projected for the fiscal fourth quarter. Instead, the company plans to allocate more funds to marketing efforts and lead generation. This raises red flags, indicating that C3.ai may not have successfully developed strong AI solutions that attract businesses organically.
While C3.ai has not completely reversed its 2023 gains, it wouldn’t be surprising to witness a further decrease in its stock value in the coming weeks and months.
In conclusion, Recursion Pharmaceuticals and C3.ai, once enticing options for AI investors, have failed to meet expectations and present substantial risks. Recursion’s unproven track record and lack of revenue-generating products make it a highly volatile stock. Meanwhile, C3.ai’s modest growth and increased marketing expenditure suggest potential inadequacies in its AI solutions. Investors should exercise caution and consider alternative AI stocks with more promising prospects.
