The explosive growth of the artificial intelligence (AI) market, which had largely been driven by the feverish expansion of generative AI platforms like OpenAI’s ChatGPT, lit a fire under many tech stocks over the past year.
Some of those rallies were justified. Nvidia‘s stock deserved to soar because its chips were required to process high-end AI tasks. Microsoft‘s massive investment in OpenAI and the integration of its AI tools into its cloud-based services also made it a great play on that secular trend.
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But beyond Nvidia and Microsoft, a lot of tech stocks shouldn’t have been lifted with the rising AI tide. I believe C3.ai (NYSE: AI), Palantir (NYSE: PLTR), and SoundHound AI (NASDAQ: SOUN) are three such stocks that could stumble in 2024.
What’s wrong with C3.ai?
C3.ai develops AI algorithms that can be plugged into a company’s existing software to accelerate and automate certain tasks. That strategy sounds promising, but C3 still generates about 30% of its revenue from a joint venture with Baker Hughes that is set to expire in fiscal 2025 (which ends in April 2025).
If C3 doesn’t renew that deal, its revenue will drop off a cliff. It still faces stiff competition from similar AI services that are directly integrated into Amazon Web Services (AWS), Microsoft’s Azure, and other leading cloud platforms, while robotic process automation (RPA) platforms like UiPath and generative AI services like ChatGPT could disrupt its long-term growth.
C3’s revenue rose a mere 6% in fiscal 2023, compared to its 38% growth in fiscal 2022. It’s started to offer usage-based plans (as opposed to its original subscription plans) to gain more customers in this tougher macro environment, and it’s rolling out new tools for generative AI platforms to stay relevant in the AI race. But those strategies will keep its bottom line in the red for the foreseeable future — and its stock doesn’t look cheap at 12 times this year’s sales.
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What’s wrong with Palantir?
Palantir’s data mining and analytics platform gathers information from disparate sources to…
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