Ticking Time Bombs: 3 AI Stocks to Dump Before the Damage Is Done

Investors are trying to decide which AI stocks to sell.

AI stocks are facing a weakening outlook after the Fed’s latest rate decision on Sept. 20. Although the Fed did not raise rates, it did signal that rates would remain higher for longer, dealing a blow to the tech sector.

The markets had already grown hesitant about AI stocks after the torrid growth in 2023. Valuation concerns had already prompted concerns that led to slowing prices. The Fed’s latest signal has made those concerns that much worse making people consider which AI stocks to sell. 

Does that mean all AI stocks are going to fall precipitously? I don’t think so.

However, I believe that investors should take a hard look at weaker AI stocks to sell now because they could fall quickly. 

C3.ai (AI) 

Source: shutterstock.com/Tex vector

C3.ai (NYSE:AI) is arguably the clearest example of the AI stock bubble and its negative effects. 

The enterprise AI firm quadrupled in price from trough to peak so far this year. Lots of investors fell in love with it as it ran from $11 to $44 between Jan. 1 and August. 

However, the company is facing a reckoning right now. Management no longer expects the company to reach profitability this year. That’s a gut punch to the firm which had emerged as the leading name in enterprise AI.

It should rightly make investors wonder just how far ahead of themselves some have gotten with wild claims about increased efficiency and profitability because of AI. Not that AI will not improve those things but many have gotten overzealous about how much and how quickly that will happen. 

C3.ai is now spending heavily on sales efforts. Its enterprise AI hasn’t sold itself quite to the levels expected and the costs of doing that manually push profitability that much farther out, making it one of the AI stocks to sell before it crashes.

Upstart Holdings (UPST)

Source: T. Schneider / Shutterstock.com

Upstart Holdings (NASDAQ:UPST) stock should raise red flags for investors who have paid attention over the past few years.

The combination of AI and pricing algorithms has promised to advance all kinds of markets like housing but the results have been less than stellar. 

Upstart uses AI to better pair borrowers with lower credit to lenders while improving accessibility. Kind of reminds me of Opendoor (NASDAQ:OPEN) and its promise to improve mortgage lending.

The problem is that Opendoor’s algorithm couldn’t foresee interest rate changes and their effects on mortgage lending. It’s fair to say that no algorithm could have accurately predicted the change, though it was foreseeable in hindsight.

It should serve as a cautionary tale when relying on AI-based algorithms to pair lenders and borrowers. 

Investors don’t need to wait to find out if Upstart Holdings will fare poorly in that regard. It is already contracting, having seen revenues fall by 40% in Q2. It’s one more instance of the pitfalls of AI-lending and  another case in which human judgment remains superior to AI. 

Aurora Innovation (AUR)

Source: T. Schneider / Shutterstock

Aurora Innovation (NASDAQ:AUR) is an autonomous driving stock with a heavy AI presence.

The company gained notoriety in 2021 when it IPO’d as autonomous driving gained a lot of attention in general. 

I wrote about Aurora Innovations a few months ago, mentioning that the current best-case scenario anticipates its self-driving trucks to be on Texas roads in 2024. That scenario was given by its CEO.

It’s fair to state that terms like ‘best-case scenario’, when given by a CEO, are highly likely to change.

Nothing against CEOs in that regard, it’s just that they are biased and subject to obvious forces that make them overly optimistic in such cases. 

In the interim, expect Aurora Innovations to continue to burn through mountains of cash. The company posted a $413 million net loss through the first half of this year.

That was much better than the $1.23 billion it burned through a year earlier during the same period. However, it’s a real problem because the company only had $182 million in cash to end Q2. The math doesn’t look promising, which is why this is one of those AI stocks to sell before everyone else does. 

On the date of publication, Alex Sirois 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.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.

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