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Artificial intelligence (AI) has taken the market by storm this year after the delayed launch of ChatGPT last year.
Interest in AI is one of the main reasons the Nasdaq Composite Index is up this year, up 22% so far. However, tech stocks have pulled back more recently as interest in AI appears to be fading and investors have realized the potential transformation will take longer than expected.
Given that AI has yet to have a significant impact on any stock, with the exception of Nvidia, AI’s moves seem to warrant some skepticism. Continue reading to see two AI inventories that would pass smoothly today.
Shares of C3. ai (AI 0. 31%) have more than doubled this year, largely thanks to the hype around AI. However, the effects of C3. ai AI have yet to show a significant effect due to the renewed interest in AI.
Revenue in its last peak quarter grew 11% and the company expects modest 15% growth for the current fiscal year.
Meanwhile, C3. ai is suffering significant losses and spending much of its revenue stream on stock-based compensation. Management also abandoned its goal of generating an adjusted operating source of revenue through the end of the current fiscal year.
C3. ai, which creates AI business programs for purposes such as call forecasting and supply chain management, is unique among AI stocks because of its enterprise software, and the company says it knows no direct competition in the field. they can simply be replaced over time, and large cloud corporations like Microsoft or Amazon could challenge C3. ai if the market is big enough.
Finally, the price-to-sales ratio of C3. ai seems unsustainable at 10. Unless its growth rate especially accelerates or the company achieves profitability, the stock will most likely decline from there.
Tesla (TSLA 0. 53%) is not a purely AI stock. The company is known for its electric vehicles, but some investors see artificial intelligence as the real reason to invest in stocks.
According to Cathie Wood of Ark Invest, for example, Tesla’s stock could rise about 1,000% through 2030, and she sees the company as a leader in the emerging robo-taxi industry, which she believes will be a $9 trillion market through 2030.
Tesla CEO Elon Musk devoted much of the recent earnings call to talking about the company’s AI prospects with its Optimus robot and fully autonomous driving technology, which is now in beta. In addition, Musk said Tesla will make its own robotaxi vehicles, which are designed to be driverless, there is no timeline for their production.
Similarly, it’s unclear exactly when full self-driving will be available to Tesla owners, but the steady price drops this year seem to mean that FSD is rarely very likely anytime soon, as the launch could specifically increase the price of Teslas. especially if Musk’s vision of Tesla’s AV rideshare market is a reality.
Beyond AI, Tesla is also seeing demand for its cars slowing, as is much of the EV industry, with Musk spending much of the latest earnings call complaining about high interest rates and Cybertruck production issues.
Tesla’s stock has been priced perfectly lately, with a price-to-earnings ratio of around 70, but in the last quarterly report things seemed to be going well for the company. Revenue grew by only 9% and profits in the automotive sector grew by only 5%. while profits fell compared to last year, with an operating margin cut by more than half.
Given weakening demand for electric vehicles and continued price cuts, those margins are likely to continue to decline.
Tesla’s valuation assumes that its AI strategy will pay off, but there’s no evidence of that yet, which necessarily makes it a leap of faith on the part of investors. Unless the stock isn’t as expensive anymore or the company proves that its AI generation is truly transformative, it’s more productive to avoid Tesla stock, given its valuation and weak EV market.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Jeremy Bowman holds positions at Amazon. The Motley Fool holds positions and recommends Amazon, Microsoft, Nvidia, and Tesla. The Motley Fool recommends C3. ai. The Motley Fool has a disclosure policy.
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