The explosive development of the unreal intelligence (AI) market, which had largely been pushed by the feverish growth of generative AI platforms like OpenAI’s ChatGPT, lit a fireplace beneath many tech shares over the previous 12 months.
A few of these rallies have been justified. Nvidia‘s inventory deserved to soar as a result of its chips have been required to course of high-end AI duties. Microsoft‘s large funding in OpenAI and the mixing of its AI instruments into its cloud-based providers additionally made it a fantastic play on that secular development.
However past Nvidia and Microsoft, lots of tech shares should not have been lifted with the rising AI tide. I imagine C3.ai (NYSE: AI), Palantir (NYSE: PLTR), and SoundHound AI (NASDAQ: SOUN) are three such shares that might stumble in 2024.
What’s mistaken with C3.ai?
C3.ai develops AI algorithms that may be plugged into an organization’s current software program to speed up and automate sure duties. That technique sounds promising, however C3 nonetheless generates about 30% of its income from a three way partnership with Baker Hughes that’s set to run out in fiscal 2025 (which ends in April 2025).
If C3 does not renew that deal, its income will drop off a cliff. It nonetheless faces stiff competitors from related AI providers which are immediately built-in into Amazon Net Providers (AWS), Microsoft’s Azure, and different main cloud platforms, whereas robotic course of automation (RPA) platforms like UiPath and generative AI providers like ChatGPT may disrupt its long-term development.
C3’s income rose a mere 6% in fiscal 2023, in comparison with its 38% development in fiscal 2022. It is began to supply usage-based plans (versus its authentic subscription plans) to achieve extra prospects on this more durable macro atmosphere, and it is rolling out new instruments for generative AI platforms to remain related within the AI race. However these methods will hold its backside line within the crimson for the foreseeable future — and its inventory does not look low cost at 12 occasions this 12 months’s gross sales.
What’s mistaken with Palantir?
Palantir’s information mining and analytics platform gathers info from disparate sources to assist its shoppers make data-driven selections. Its Gotham platform serves authorities prospects, whereas its Foundry platform supplies related instruments for giant industrial prospects. The U.S. army and most U.S. authorities businesses presently use Gotham to collect intelligence.
After its public debut in 2020, Palantir claimed it may develop its annual income by at the least 30% by 2025. Its income rose 47% in 2020 and 41% in 2021, however solely grew 24% in 2022. For 2023, it expects simply 16% income development.
Palantir blames that slowdown on the macro headwinds for Foundry and the uneven timing of Gotham’s authorities contracts. Nevertheless, it is also going through competitors from related information mining platforms throughout the industrial market in addition to internally developed platforms inside the U.S. authorities.
On the intense aspect, Palantir has stayed worthwhile over the previous 12 months because it reined in its spending, and it initiated a $1 billion buyback plan in August. These methods are accountable, however in addition they counsel Palantir’s enterprise is maturing — and its inventory nonetheless appears to be like expensive at 60 occasions ahead earnings and 14 occasions subsequent 12 months’s gross sales.
What’s mistaken with SoundHound AI?
SoundHound AI supplies audio and speech recognition providers and apps for a variety of industries. Its versatile providers are interesting to corporations that need to add audio recognition providers to their merchandise with out tethering themselves to a tech large like Microsoft or Alphabet‘s Google.
SoundHound continues to be rising like a weed. Its income rose 47% in 2022 and it expects 44-57% development in 2023. However earlier than it went public by merging with a particular goal acquisition firm (SPAC) in 2022, it informed traders it may develop its income by 41% in 2022 and a whopping 245% in 2023 because it scaled up its enterprise.
SoundHound blamed that slowdown on the robust macro atmosphere, but it surely’s clearly struggling to broaden its enterprise within the shadow of bigger speech recognition platforms like Microsoft’s Nuance and Google Assistant. It additionally has buyer focus issues: Greater than two-thirds of its income got here from simply three prospects in 2022.
SoundHound would possibly look moderately valued at eight occasions subsequent 12 months’s gross sales, but it surely’s nonetheless deeply unprofitable and it ended its newest quarter with a excessive debt-to-equity ratio of 4.6. These evident flaws may all set it up for a steep drop in 2024.
Must you make investments $1,000 in C3.ai proper now?
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John Mackey, former CEO of Complete Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Suzanne Frey, an government at Alphabet, is a member of The Motley Idiot’s board of administrators. Leo Solar has positions in Amazon. The Motley Idiot has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, Palantir Applied sciences, and UiPath. The Motley Idiot recommends C3.ai. The Motley Idiot has a disclosure coverage.
These 3 Overrated Synthetic Intelligence (AI) Shares May Crash in 2024 was initially printed by The Motley Idiot