Traders have made artificial intelligence (AI) 2023’s hottest investing theme and with good reason. It’s truly remarkable how quickly generative AI solutions have developed in chatbot and image generation fields. However, this technology has created a lot of overvalued AI stocks.
Reportedly, there were approximately 2,000 companies involved in the U.S. car industry in its early years; within a short period, this dropped to less than 100. In later decades, it would fall to just a handful of surviving U.S. automakers. In a similar way, we’re seeing an endless number of firms entering the AI field, hoping to cash in on this emerging technology.
Just as we saw with cars, however, there will be a winnowing of the AI arena, especially as the existing tech titans are now deploying serious capital in the field. That will lead many second or third-tier AI stocks to decline. In particular, it’s time to consider dumping these three AI stocks to sell before the competition crushes them.
C3.ai (NYSE:AI) is an enterprise software company that offers solutions for data analysis, customer relationship management tools, predictive analytics, and more.
The company was launched with a focus on the energy industry and was previously named C3 Energy Management and then C3 IoT before its current moniker. That speaks to C3’s challenges in finding a working business model. When oil prices were high, C3 wanted to benefit from that enthusiasm. Then it leaned into the Internet of Things phenomenon for a few years. Now C3 wants investors to view it as a sleek AI play.
The truth is rather less exciting. C3 has a meaningful enterprise software business, but one that has little relation to the generative consumer AI applications we’ve seen take off in 2023.
And C3’s actual business has barely shown a pulse this year, despite the AI enthusiasm. For the quarter ending April 30, 2023, C3.ai’s revenues were up a measly 0.1% — from $72.3 million to $72.4 million — vs. the same quarter of 2022. The AI revolution may be here, but there’s little evidence that C3.ai will be leading the way forward.
Upstart (NASDAQ:UPST) is a FinTech company focused on lending. The company rose to prominence in 2021, with shares surging nearly tenfold in 2021 amid the vigorous tech stock rally of that year.
However, Upstart’s business never came close to justifying the peak $400 share price. Soon, UPST stock lost more than 90% of its value as the company’s operations ran massive losses.
Upstart stock has staged an unlikely comeback this year, however. Thanks to the company’s marketing of itself as an AI-powered lending platform, traders have started rushing back into UPST stock again. Like in 2021, this is bound to end badly.
That’s because, while the stock price may be up, Upstart’s actual business is imploding. Last quarter, the company’s revenues plunged 67% to just $103 million. Total loans originated sunk 78% year-over-year. The company lost $132 million from operations in a single quarter. Upstart may have AI-powered loans, but there has not proven to be much demand for or profitability generated by said loans.
SoundHound AI (SOUN)
SoundHound AI (NASDAQ:SOUN) is developing AI-powered voice tools and solutions. Its Houndify platform aims to help brands generate voice assistants, speech recognition, text-to-speech tools and other related offerings.
Given the excitement around generative AI, it’s not surprising that traders have gotten excited about SOUN stock, with average trading volume hitting nearly 15 million shares per day.
Unfortunately, the hype may be well ahead of the actual product’s utility to customers at this point. SoundHound AI generated just $31 million in revenues last year, and analysts see that growing to $45 million this year. That’s a respectable growth rate but still adds up to a rather diminutive overall operation.
SoundHound AI is running sizable losses, and analysts expect the company to continue losing money through at least 2025. And, despite the low share price, SoundHound AI is not cheap. With its large outstanding share count, the company actually has a market capitalization of almost $700 million. That’s simply a massive price tag for a small money-losing operation such as SoundHound AI.
On the date of publication, Ian Bezek did not hold (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.