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AI Stock Alert: 3 Companies Destined for a Miserable Plunge

AI Stock Alert: 3 Companies Destined for a Miserable Plunge

Considering selling AI stock might raise some eyebrows, but bear with me.

AI has arguably been the hottest investment trend of the past 12 months and will continue to play a critical role in driving the markets. The S&P 500 it’s up north of 25% last year and about 15% year-to-date (YTD).

However, as the market cools, investors are now looking for clear results, not just innovative ideas. Thus, companies that have moved towards AI need to deliver tangible AI results to be in favor. Therefore, given the current market dynamics, investors in AI stocks need to separate the wheat from the chaff.

That said, here are three AI stocks to sell. They stand on shaky ground while offering little potential for growth. Holding on to these weak AI plays could risk further losses, weighing on investors’ portfolios. Moreover, discerning which AI stocks to unload becomes imperative as we prepare for a sustained run from interest rate cuts.

C3.ai (AI)

A conceptual image representing AI (Artificial Intelligence).A conceptual image representing AI (Artificial Intelligence).

When I think of AI bandwagoners, C3. have (NYSE:you) is an obvious choice, especially given its oh-so-subtle 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 seen double-digit growth in its top line over the past five years, while its stock lags behind.

The lack of investor interest in the stock can be linked to its mounting losses, which continue to weaken its financial position. In its latest fiscal year earnings report, it grew sales 16% year-on-year (YOY) to $310 million, with its losses widening to $280 million from $268 million. It expects adjusted operating losses to fall between $95 million and $125 million for next year, wider than its previous estimates.

Additionally, as my colleague Rich Duprey noted, 121 of InvestorPlace’s 191 client contracts for the year are pilot programs. These are temporary setups where customers test the waters before fully committing.

Dell Technologies (DELL)

A Dell (DELL) office in Santa Clara, California.

Source: Ken Wolter / Shutterstock.com

Dell Technologies (NYSE:della) started producing high-performance AI servers essential for developing sophisticated AI models. However, despite its successful strategic positioning, Dell is having difficulty gaining a foothold in the niche.

The rising costs and complexities of manufacturing AI servers threaten to squeeze Dell’s margins, undermining its ambitious AI goals. Its Infrastructure Solutions Group (ISG), which includes its AI server business, saw a 1% decline in operating income, which accounts for just 8% of ISG’s net income. These results are further complicated by the fact that ISG’s sales for the quarter were up 22% and more than 40% for its server and networking businesses alone. Dell subsequently revised its full-year margin guidance, expecting margins to decline by 150 basis points.

As a result, Bloomberg analyst Woo Jin noted that Dell’s performance “casts some doubt on near-term competitiveness.” That change introduced a note of caution among investors, potentially reshaping expectations for Dell’s future in the competitive AI landscape.

BigBear.ai (BBAI)

BigBear.ai (BBAI) is a leading provider of high-speed decision-making technologies.  They specialize in AI-based analytics and mission-critical solutions

Source: MacroEcon / Shutterstock.com

BigBear.ai (NYSE:BBAI) is an AI data mining and analytics firm that simplifies complex enterprise data. Despite having a specialist role in defense and industrial analysis, the firm has seen a major decline.

In its first quarter, it saw sales fall 22 percent to $33 million — well below expectations of $44 million. Additionally, the firm contrasted sharply with the sector expansion with a loss of $0.22 per share, well ahead of the anticipated loss of $0.06. The company’s woes were compounded when a key Air Force contract ended with the bankruptcy of a major customer, Orbit Virgin. Therefore, the high risks of customer concentration are evident in its business as it struggles to find a way out of its current mess.

This decline prompts a critical assessment of BigBear.ai’s market relevance. The current market environment casts a long shadow over its long-term prospects. Therefore, it is best to avoid BBAI stock at this time.

At the time of publication, Muslim Farooque did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to InvestorPlace.com Publishing Guide.

Muslim Farooque is a passionate investor and an optimist at heart. A lifelong gamer and tech enthusiast, he has a particular affinity for analyzing tech stocks. Muslim holds a Bachelor of Applied Accounting degree from Oxford Brookes University.