Not every AI company is destined for success. Here are three that pose significant risks.
You may have caught wind of the AI “spending boom” fueling rapid stock market growth. The catch is, despite hefty investments, just throwing money at AI won’t ensure long-term success. In fact, three AI stocks are particularly risky right now and might not be wise choices for retirement savings.
Let’s take a look at these three stocks.
1. SoundHound AI: The little hound in a big pound
This year has been challenging for SoundHound AI. Following a huge plunge in value after negative news from AI heavyweight Nvidia, the company’s third-quarter earnings report revealed a staggering GAAP net loss of $109.3 million, despite bringing in $42 million in revenue.
SoundHound seems to be increasing its revenue from voice-enabled AI tech, especially in drive-thrus and automotive uses. They’ve made efforts to branch into customer service through their acquisition of Amelia, aiming at industries like finance and healthcare. Yet, it’s not a novel idea. I mean, isn’t there already enough competition? Think Alexa. So, the path to success isn’t guaranteed.
Even after a significant decrease in its stock price, SoundHound’s shares are still trading at around 30 times sales, which is quite steep compared to many other tech companies. It’s even pricier than Nvidia, which trades at 25 times sales. Until SoundHound can show it’s capable of expanding into new fields effectively, I’d hesitate to invest.
2. BigBear.ai: An AI growth stock that’s not growing
BigBear.ai has a diverse range of AI offerings, including data analytics and facial recognition, generally targeting the U.S. military and government agencies. However, its performance lags behind other security-focused AI firms like Palantir Technologies.
While many AI companies are enjoying soaring sales, BigBear.ai has seen its revenues drop over the last three years, and it looks like this trend could persist into 2025. The management’s forecast for Q4 suggests revenues will fall by as much as 44%. In stark contrast, Palantir projects a 61% growth for the same period.
If BigBear.ai had profit margins like some competitors, it could endure some downturns in revenue. But, its gross margin is among the lowest in the market at just 22.4%, a drop from earlier months. There aren’t many encouraging signs for this company; backlogs are disappearing, dilution is on the rise, and cash burn is increasing. Still, it’s trading at a valuation of 14 times sales. Honestly, even at a discount, this stock could be a tough sell.
3. Pony.ai: New and concerning
The third stock is one I’d certainly tread carefully around. Pony.ai, which went public less than a year ago, specializes in AI-driven self-driving vehicles and recently reported impressive year-over-year revenue growth of 72% in Q3, thanks to their robotaxi services and licensing revenue.
So, what’s the catch with this seemingly flourishing young company? I think it just feels… well, too fresh.
Pony.ai released its first major earnings report for Q4 recently, and the figures showed a drop from $50.6 million in Q4 2023 to $35.5 million in Q4 2024. This quarter is particularly crucial since it’s been the company’s strongest revenue-generating period. The upcoming Q4 report will be key for assessing year-over-year financial changes.
I won’t buy into Pony.ai until I see its Q4 revenue holding steady or improving, along with other positive financial indicators. Honestly, I typically wait a year post-IPO before jumping in; it allows me to see if my optimistic expectations actually play out. If you’re nearing retirement, you might consider doing the same.
