AI stocks are becoming one of the most popular investments of the year and for good reason. Almost daily, a new development in AI-enabled text, image or animation technologies comes out. But amid all the hype, some AI stocks may be overvalued and ripe for selling. There three unappealing AI stocks that may drop in the coming months.
C3.ai (NYSE: AI) has become a way to measure sentiment on AI, thanks to its average daily trading volume of 24.5 million shares. Despite its 55.5% increase year to date, this stock may not be as exciting as people would expect. Instead of offering cool applications, C3.ai is more focused on analyzing large amounts of data to predict potential issues with, for example, factory parts in order to reduce downtime and improve efficiency. While the services of C3.ai are valuable, it may not be the stock that many people think of when discussing artificial intelligence.
BigBear.ai Holdings (NYSE: BBAI) is a comparable stock but even more risky. BigBear.ai is a SPAC, which stands for special purpose acquisition company, and its stock was valued at $10 in May 2022 but shortly dropped to 58 cents. Unfortunately, while BigBear.ai has a revenue base of $155 million over the past 12 months and is growing, it is also losing money on an operating level and is not a production that can lend itself to high valuations in the AI field.
Nvidia (NASDAQ: NVDA) is the classic example of a tech leader, but its current valuation does not factor in its AI ambitions. The stock has risen 90% this year and is trading about 60 times forward earnings and 25 times higher revenue than the previous year. While Nvidia is a leader in providing the AI chips and engineering, Abhinav Davuluri of Morningstar believes the stock to be fairly valued at $200 per share, 28% lower than current prices.
Chegg (NYSE: CHGG) is a student education company that saw a 48% plunge in a single day in this week due to a disastrous earnings report and a warning about ChatGPT causing pain to the company. This goes to show the serious effects of AI on the economy and should merely increase the demand for AI stocks.
Although artificial intelligence is growing and will remain a booming industry, one should be careful when selecting AI stocks and do their due diligence before investing. The three overhyped AI stocks to sell mentioned in this article could all potentially see significant drops in the near future.
