Over the past year or so, we have witnessed the rise of artificial intelligence. It’s in the news, big companies are incorporating it into their processes, and it’s slowly making its way into everyday life.
But now, the hype in this field is starting to reach a fever pitch.
For example, FactSet released a report detailing the number of companies that cited AI in their earnings calls over the past decade. We found that 179 companies mentioned AI in their latest quarterly earnings reports. This is significantly higher than the 5-year average of 73 people and the 10-year average of 45 people.
As the chart below shows, the second and fourth quarters of 2023 were the peak mentions of AI in earnings calls.
Source: FactSet
Currently, many of these companies are simply trying to capitalize on the AI hype and impress analysts and investors. However, it’s important to note that not all AI stocks are created equal. And now investors seem to have forgotten about that.
One of the most common mistakes investors are making today is investing in companies with AI in their names and not focusing on the stock’s fundamentals. And this is a recipe for disaster.
So, today, market 360, we’re talking about stocks that are rising purely on the back of AI.I’ll share why I think this is a big mistake and where you can find it Fundamentally good stock You can invest with confidence.
sound hound bubble
There’s one company I’ve noticed lately that a lot of people are jumping into because of the excitement around AI. Soundhound AI (early clouds).
SoundHound is a voice AI and speech recognition company. The Santa Clara, California-based company provides AI-powered voice technology for cars, televisions, smart appliances, and restaurants.
Well, since the beginning of this year, SOUN has continued to rise quite a bit, recently hitting a high of $10.25. In fact, it has soared more than 250% since early February.
However, I strongly believe that this surge is not organic. Because they don’t have the good fundamentals needed to sustain that momentum. In fact, according to forbesSix factors that indicate stock prices are rising too much, too fast:
- Disappointing fourth quarter financial report
- fierce competition
- high cash burn rate
- suspicious financial statements
- overrated
- And bearish bets on the company surge
The good news is that the company’s first quarter sales are expected to increase 50.6% to $10.1 million. The bad news is that analysts are expecting the company to report a loss in earnings of $0.09 per share. This compares to his expected profit loss of $0.07 a few months ago. It’s not a good sign when the analyst community is lowering consensus earnings estimates.
In fact, SoundHound had an earnings miss of 16.7% in the fourth quarter. Not to mention, the company has a market capitalization of $2.18 billion, but its annual revenue forecast for 2024 is only $69.5 million. In other words, SoundHound trades at 31.3 times his expected 2024 earnings.
Therefore, although revenues are increasing rapidly, the company is still incurring losses. And with just $95 million in cash on its balance sheet, SoundHound will need to turn around quickly.
I would also like to add that this stock is frequently mentioned on WallStreetBets, a popular forum on Reddit. In case you don’t remember, this is the same place where a group of investors orchestrated a massive short squeeze. Gamestop Co., Ltd. (GME) 2021.
Now, that particular episode might have been fun to watch. But WallStreetBets is also a hotbed of aggressive trading, where investors often collude with each other to inflate stock prices. This type of trading activity is dangerous.
This AI stock is clearly a “pump and dump” stock, and I expect the bubble to burst.
Looking for AI stocks? Focus on fundamentals
I’ve said it before, and I’ll say it till I’m blue in the face…The things you should invest in are: Fundamentally good stock. If you’re investing in a stock, no matter what company it’s in or what sector it’s in; good foundationwe can be confident that its rise is not due to a pump-and-dump scheme, but rather because its fundamentals are supporting its growth.
Unfortunately for SoundHound, the company doesn’t have the fundamentals to support growth and will eventually catch up with its stock price.
So instead of blindly throwing money at companies with AI in their name, you should make sure they have AI in place. good foundation.
With that in mind, I’ve found five stocks that are expected to take the lead as AI explodes. All of these are recommended in my article. breakthrough stocks service. New subscribers will receive my latest special reports. 5 small-cap gems for 2024 AI. boom. These five companies have strong fundamentals that have successfully integrated AI into their businesses or stand to benefit directly from it.
And just as there will be big AI winners, there will also be real losers… So to help you avoid them, we also bring you another all-new report – AI landmines: 3 stocks to avoid in the age of AI. These companies could be left behind in the AI race. Given its popularity, you have to be careful that your account doesn’t have a ticking time bomb.
You will also have full access to my breakthrough stocks Portfolio, all my weekly updates, monthly issues, special reports, special market podcasts, and more.
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Sincerely,
Louis Navellier
Editor, market 360
