Beware the AI Hype: 3 Stocks to Sell Before They Tumble
Artificial Intelligence (AI) garnered incredible attention in 2023 with the launch of OpenAI’s ChatGPT and other generative AI applications. What would later be dubbed the “AI craze” led to the rise of AI stocks with market-crushing returns — and some AI stocks to sell.
Overall, AI-related stocks largely performed well last year. Still, investors need to seriously examine what is hype versus companies with actual growth prospects. Just because a company is employing AI or machine learning tools does not mean it will make a great stock to have in one’s portfolio. Product-to-market fit and overall profitability are things to consider. These kinds of stocks also usually have inconsistent financial performance, a valuation that makes little sense or both. Below is a list of three AI stocks to sell in January before they crash and burn.
Urgent.ly (ULY)
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Urgent.ly (NASDAQ:ULY) designs and develops a mobility assistance software platform for roadside assistance. The tech firm’s platform allows users to address vehicle-related issues, including car lockouts, tire changes, towing, jump starts and gas deliveries. To provide these services, Urgent.ly’s software platform combines location-based services, real-time data, AI and machine-to-machine communication to provide roadside assistance solutions.
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Despite having AI-based applications, the company’s growth has been less than stellar. While from 2021 to 2022, revenue grew 26% an annualized basis, quarterly revenue in 2023 has slowed down in growth when compared to similar periods in 2022. Most recently, Q3 revenue only increased 3% year-over-year.
Shares have fallen more than 47% since Urgent.ly IPO’d in late October 2023.
Riskified (RSKD)
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Riskified (NYSE:RSKD) is an e-commerce risk management platform that leverages AI and machine learning models to allow online merchants to create trusted relationships with their consumers. The company’s core products include ‘Chargeback Guarantee’ and ‘Policy Protect and Account Secure’. Chargeback Guarantee approves or denies online orders, while the latter is deployed to identify and potentially block any consumers that may be taking advantage of the merchant’s terms and conditions.
Although Riskified has been able to grow revenues since its inception, improving profitability has not necessarily followed, which makes its current multiple valuation astronomic. The company relies heavily upon e-commerce merchants to purchase its product. However, with the global economy having a mixed outlook and many small-to-medium sized enterprises struggling with higher interest rates, Riskified will likely struggle with growth in the upcoming quarters. Riskified’s shares have fallen more than 18% over the past 12 months.
Veritone (VERI)
Source: shutterstock.com/Allies Interactive
Veritone (NASDAQ:VERI) is an artificial intelligence platform powered by its proprietary aiWARE operating system. aiWARE helps customers to optimize business data (structured or unstructured) and help managers drive business decisions. The company also leverages the system when delivering managed services to customers through its media advertising business.
The Covid-19 pandemic catapulted Veritone’s revenue out of years of anemic growth. Unfortunately, nowadays, a lot of that revenue relies on Veritone’s hiring solution, the main customer of which is Amazon (NASDAQ:AMZN). This creates a tremendous amount of customer risk. The lack of a long-term contract has caused Veritone’s hiring solutions revenue to fluctuate, as evidenced by the significant impact caused by Amazon’s recent budget cuts.
Moreover, perpetual losses have not only dwindled Veritone’s cash balance but has also pushed the company to access capital from the debt markets, which could put even more pressure on the company’s bottom line. VERI shares have fallen more than 72% over the past 12 months and trades at just below $2.00/share.
On the date of publication, Tyrik Torres 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.
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.
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