Artificial Intelligence ) has garnered incredible attention this year and successfully captured the imaginations of a swath of audiences. This has subsequently led to the rise of AI stocks with market-crushing returns.
Now investors need to seriously contemplate what could be next in the AI revolution. Searching for exposure to this hot sector, investors have poured into publicly listed tech companies that have invested in AI. However, some AI stocks investors should steer clear of, despite the market craze. These stocks usually have had inconsistent financial performance, a valuation that makes little sense, or both. Below is a list of 3 AI companies investors should look to sell in July.
Founded in 2012 and headquartered in San Mateo, California, Upstart (NASDAQ:UPST) operates as a cloud-based artificial intelligence lending platform. The platform’s AI model was trained for over nine years on aggregated consumer loan demand data. The model can now accurately price and advertise loans while maintaining a low default rate. Upstart’s lending partners, which include banks and credit unions, are charged a ‘platform fee’. This gives the partners access to the multi-tenant cloud-based platform with which they can define their own credit policies and determine any significant parameters of their lending program. Upstart also generates revenues when the company itself services the loans on the platform. When loans are funded on the platform, they are either held on the balance sheets of Upstart’s lending partners, sold to institutional investors or kept on Upstart’s balance sheet.
Despite market conditions keeping more loans on Upstart’s balance sheet, the company was able tosecure more capital to fund $2 billion more in loans. The company’s stock is up nearly 200% today. However, the reason why Upstart is on this list is because it is entirely overvalued. The company is trading at 236x forward-looking earnings and nearly 81x forward-looking EBITDA. The company’s positive outlook announced in its recent earnings call may convince investors to hold the stock. In my opinion, investors would be better off cashing in their returns now rather than receiving a hard reality check later.
Riskified (NYSE:RSKD) is an e-commerce risk management platform that leverages AI and machine learning models to allow online merchants to create trusted relationships with their consumers. The company’s core products include ‘Chargeback Guarantee’ and ‘Policy Protect and Account Secure’. The former approves or denies online orders, while the latter identifies and blocks consumers that may be taking advantage of the merchant’s terms and conditions.
Since the company’s inception in 2019, annual revenues have doubled from $160 million in 2019 to $261 million in 2022. Unfortunately, the company has not been able to reach profitability, which makes its current multiple valuation astronomic. The e-commerce industry has had a global mixed outlook due to being hit with bottlenecks and geopolitical tensions. Riskified’s shares are currently up only 6% YTD.
Veritone (NASDAQ:VERI) is an artificial intelligence platform powered by its proprietary aiWARE operating system. aiWARE helps customers to optimize business data (structured or unstructured) and help managers drive business decisions. The company also leverages the system when delivering managed services to customers through its media advertising business. Though the company has been around since 2014, its revenues have only recently reached $100 million. One of Veritone’s main revenue sources is its hiring solution, the main customer of which is Amazon (NASDAQ:AMZN). Lack of a long-term contract, however, has caused Veritone’s hiring solutions revenue to fluctuate, as evidenced by the significant impact caused by Amazon’s recent budget cuts.
Despite Veritone’s year-over-year revenue growth, investors are staying away due to its lack of improved profitability and the competitive landscape. This is evident by the fact that VERI shares have fallen more than 20% YTD.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.