Considering selling AI stocks might raise eyebrows, but bear with me.
AI has undoubtedly been the hottest investing trend over the past 12 months and will continue to play a critical role in driving markets. The S&P 500 jumped north of 25% last year and roughly 15% year-to-date (YTD).
However, as the market cools, investors are now looking for clear results, not just groundbreaking ideas. Thus, businesses that jumped on the AI bandwagon need to deliver tangible AI outcomes to be in favor. Therefore, given the current market dynamics, AI stock investors must separate the wheat from the chaff.
That said, here are three AI stocks to sell. They stand on shaky ground while offering little upside potential. Holding onto these lackluster AI plays could risk further losses, weighing down investor portfolios. Moreover, discerning which AI stocks to offload becomes imperative as we prepare for a sustained bull run following interest rate cuts.
C3.ai (AI)
When thinking of AI bandwagoners, C3.ai (NYSE:AI) is an obvious pick, especially considering its oh-so-subtle ticker symbol, AI.
The company offers a suite of efficient and low-cost AI software solutions and develops enterprise-scale AI applications. To its credit, C3.ai has posted double-digit growth in its top line over the past five years, while its stock remains laggard.
The lack of investor interest in the stock may be linked to its growing losses, which continue to weigh down its financial positioning. In its most recent fiscal year earnings report, it grew sales by 16% on a year-over-year (YOY) basis to $310 million, with its losses widening to $280 million from $268 million. It expects adjusted operating losses to fall in the $95 million and $125 million range for the upcoming year, broader than its previous estimates.
Furthermore, as my colleague Rich Duprey noted, 121 out of InvestorPlace’s 191 customer agreements for the year are pilot programs. These are temporary setups where clients test the waters before fully committing.
Dell Technologies (DELL)
Dell Technologies (NYSE:DELL) has started manufacturing high-performance AI servers critical to developing sophisticated AI models. However, despite its successful strategic positioning, Dell has trouble gaining a foothold in the niche.
The rising costs and complexities of AI server production threaten to squeeze Dell’s margins, dampening its ambitious AI pursuits. Its infrastructure solutions group (ISG), which includes its AI server business, saw a 1% drop in operating income, which forms just 8% of ISG’s net revenues. These results are complicated further by the fact that ISG sales for the quarter increased by 22% and more than 40% for purely its server and networking business. Subsequently, Dell has revised its full-year margin guidance, expecting margins to drop 150 basis points.
Consequently, Bloomberg analyst Woo Jin noted that Dell’s performance “casts some doubt on near-term competitiveness.” This shift has introduced a note of caution among investors, potentially reshaping expectations for Dell’s future in the competitive AI landscape.
BigBear.ai (BBAI)
BigBear.ai (NYSE:BBAI) is an AI data mining and analytics firm simplifying complex enterprise data. Despite having a specialized industrial and defense analytics role, the firm has experienced a major downturn.
In its first quarter, it posted sales that plummeted 22%, falling to $33 million — well below the expected $44 million. Additionally, the firm starkly contrasts with the sector’s expansion with a loss of $0.22 per share, significantly ahead of the anticipated $0.06 loss. The firm’s woes were compounded when a key Air Force contract ended along with the bankruptcy of a major client, Virgin Orbit. Hence, the high customer concentration risks are evident in its business as it struggles to find a way out of its current mess.
This downturn prompts a critical assessment of BigBear.ai’s market relevance. The current market backdrop casts a long shadow over its long-term prospects. Hence, it’s best to avoid BBAI stock at this point.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.