Artificial intelligence (AI) has been the talk of the town this year, and it seems like everyone is looking to get in on the action. The opportunity in AI is massive, with the market expected to be worth over $1.5 trillion by 2030. However, investors must sift the gems from the rubble and understand which AI stocks to avoid.
As we delve into the mysterious realm of AI, it’s natural for the sector to turn most investors into nervous wrecks. Even with mounting evidence of AI’s benefits and long-term ubiquity, it but natural to feel a bit of trepidation while investing in the space. Rightly so, not all AI stocks are cut from the same cloth, so it’s imperative to exercise caution when wagering on the sector. That said, here are three AI stocks to avoid at this time.
AI Stocks: Riskified (RSKD)
The name Riskified (NYSE:RSKD) carries a bitter taste of the truth, as this stock has nosedived more than 70% since its IPO in 2021. The Israeli software company uses its patented AI technology to deliver a frictionless e-commerce experience. Its technology’s effectiveness in detecting fraud in e-commerce transactions is debatable, which helps explain its horrendous stock market performance.
Moreover, it doesn’t help that the double whammy of high inflation and the pandemic fade are weighing down growth in the e-commerce realm. According to analysts at UBS, the e-commerce sphere could witness a 0.5% drop in sales this year and a 0.3% drop in 2024.
Further complicating things for Riskified is that its profitability metrics are languishing firmly in the red. The company forecasts a loss ranging from $22 million to $27 million this year after posting a negative EBITDA of 41.6%.
Veritone (VERI)
Veritone (NASDAQ:VERI) is a top software company offering AI-driven solutions for media, advertising, and other sectors. At its heart lies its popular aiWare platform that effectively harnesses the power of AI to dissect and decode audio/visual data. Though it seemed to have positioned itself as a story stock in the AI realm, its future prospects aren’t translating into financial gains.
The firm’s organic top-line growth has slowed down over the past couple of years, with most of its expansion coming from acquisitions. Moreover, it derives up to 30% of its sales from retail giant Amazon (NASDAQ:AMZN), which is looking to cut costs in the current macro environment.
Though Veritone is looking at its belt-tightening measures to narrow down its $25 million net loss, it’s unlikely to get anywhere with its decelerating revenue growth rates. Forward revenue estimates are at just 14.8%, substantially lower than its 5-year average revenue growth of 69%. Considering the 20% drop in year-over-year growth in sales in its last quarter, even the 14.8% estimate seems like a long shot.
PROS Holdings (PRO)
PROS Holdings (NYSE:PRO) is a leading configure-price-quote software provider that effectively streamlines the sales process for merchants. Moreover, its AI-based platform identifies shoppers’ preferences and effectively targets them with ads and promotional activities.
Though it’s generated relatively strong sales, it continues to bleed red ink, constraining its earnings growth. Over the past five years, on average, the firm’s net income and EBITDA margins have dropped over 32% and 21.4%, respectively. Moreover, as we advance, the firm expects just 7% growth this year, roughly 4% lower than its 5-year average. Therefore, it’s plausible to assume that its stock will continue trading in the red, as it has over the past decade.