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Explosive growth in the artificial intelligence (AI) market, driven largely by the frenzied expansion of generative AI platforms such as OpenAI’s ChatGPT, has lit a fire under many tech stocks over the past year.
Some of these meetings were legitimate. Nvidia‘s chips were needed to handle high-end AI tasks, so the company’s stock price was understandably soaring. microsoft‘s large investment in OpenAI and its integration of AI tools into cloud-based services also positions the company well on that long-term trend.
But beyond Nvidia and Microsoft, many tech stocks shouldn’t have risen with the rising tide of AI.i believe C3.ai (NYSE:AI), Palantir (NYSE:PLTR)and Soundhound AI (NASDAQ: SOUN) Three such stocks could stumble in 2024.
What’s wrong with C3.ai?
C3.ai develops AI algorithms that can be embedded into a company’s existing software to speed up and automate certain tasks. Although this strategy seems promising, C3 still derives about 30% of its revenue from joint ventures with. baker fuse This deadline is scheduled to expire in fiscal year 2025 (ending in April 2025).
If C3 does not renew its contract, revenues will fall off a cliff. It still faces strong competition from similar AI services that are directly integrated. Amazon Web services (AWS), Microsoft’s Azure, and other major cloud platforms, as well as robotic process automation (RPA) platforms such as: UiPath Also, generative AI services like ChatGPT could hinder the company’s long-term growth.
C3’s revenue grew only 6% in FY2023 compared to 38% growth in FY2022. The company started offering usage-based plans (as opposed to original subscription plans) to attract more customers in this more demanding macro environment. Deploying new tools for generative AI platforms to stay relevant in the AI race. However, such a strategy will likely result in final profits remaining in the red for the time being, and the company’s stock price, at 12 times this year’s sales, is by no means cheap.
What’s wrong with Palantir?
Palantir’s data mining and analytics platform collects information from a variety of sources to help clients make data-driven decisions. The company’s Gotham platform serves government customers, while its Foundry platform provides similar tools to large commercial customers. The US military and most US government agencies currently use Gotham for intelligence gathering.
After opening to the public in 2020, Palantir claimed it could increase annual revenue by at least 30% through 2025. Its revenue grew by 47% in 2020 and 41% in 2021, but only grew by 24% in 2022. For 2023, it is expected to be only 24%. 16% revenue increase.
Palantir attributes the slowdown to macro headwinds for foundries and uneven timing of contracts with Gotham’s government. But he also faces competition from similar data mining platforms across the commercial market and those developed internally within the U.S. government.
On the bright side, Palantir has remained profitable over the past year by reining in spending and launched a $1 billion stock buyback program in August. While this strategy is responsible, it also signals that Palantir’s business is maturing — and the stock still looks expensive at 60 times forward earnings and 14 times next year’s sales. .
What’s wrong with SoundHound AI?
SoundHound AI provides audio and speech recognition services and apps for a wide range of industries.Its flexible services are used by Microsoft and alphabetGoogle.
SoundHound continues to grow like a weed. The company’s revenue is expected to grow 47% in 2022 and 44-57% in 2023. But before merging with a special acquisition purpose company (SPAC) and going public in 2022, the company told investors that its revenue could grow 41% in 2022. And as the business expands, it will reach a whopping 245% in 2023.
SoundHound blames the slowdown on a tough macro environment, but it’s clear the company is struggling to scale in the shadow of large voice recognition platforms like Microsoft’s Nuance and Google Assistant. He also has customer concentration issues, with more than two-thirds of his revenue coming from just three of his customers in 2022.
SoundHound’s sales may seem reasonable at 8x next year’s, but it is still very unprofitable, ending its most recent quarter with a high debt-to-equity ratio of 4.6x. These obvious flaws could lead to a sharp decline in 2024.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Leo Sun has a position on his Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, Nvidia, Palantir Technologies, and UiPath. The Motley Fool recommends his C3.ai. The Motley Fool has a disclosure policy.
“These 3 Overvalued Artificial Intelligence (AI) Stocks Could Crash in 2024” was originally published by The Motley Fool.
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