AI Company Stocks are Rising Fast, but It’s Not a Bubble

Artificial intelligence (AI) companies attract the most attention and the highest amounts of investment. AI stocks can be chosen from software developers, semiconductor manufacturers, and companies actively utilizing AI technologies to enhance their products.

AI originally developed as a sophisticated endeavor to emulate human behavior, has now permeated virtually every facet of daily existence. The utilization of AI technologies underpins process automation, smartphones, social networks, robotics, autopilots, analytics, and machine learning.

In order to maintain competitiveness within the contemporary economy, any modern company must harness the power of artificial intelligence. Should a company neglect to integrate AI into its business model or lag behind in doing so, it faces the risk of obsolescence and relinquishing its market standing. As a result, intense competition in adopting and operationalizing AI capabilities is observable across diverse industries.

Forecasts indicate that the collective revenue of the global AI market will approach $300 billion by 2026. This marks a substantial surge from the $29.86 billion generated in 2020, signifying an average annual growth rate of 35.6% spanning the period of 2021 to 2026. Companies involved in the AI sector are garnering escalating attention annually, attracting considerable investments from both private and institutional investors.

Let’s take a closer look at a few American companies specializing in artificial intelligence. As part of this selection, you will get acquainted with companies actively implementing artificial intelligence technologies in their business operations and product offerings.

Microsoft

Microsoft Corporation (ticker: MSFT) is the largest developer of software, including highly sophisticated software, in the United States and the world.

The company’s stocks, which, in January, announced an investment of $10 billion in OpenAI, the startup behind ChatGPT, have seen a growth of 49.55% (as of August 8, 2023).

The market capitalization stands at 2.453 trillion USD, while revenue in the second half of the year has surged to 211.915 billion USD.

Due to recent weakness in the stock market, MSFT quotes have entered into a correction. It’s worth noting that the rally of shares in many AI-related companies has slowed down. This could be attributed to both the recent strengthening of the dollar and profit-taking by traders.

A correction is always viewed as a potential buying opportunity, but it’s essential to carefully examine all current market-influencing factors. One such factor could be the Federal Reserve’s policy and its battle against inflation. Monitoring the depth of the correction is also crucial as it could intensify, potentially offering even more advantageous entry points into the market.

Meta Platforms

Meta Platforms Inc. (ticker: FB) is a prominent American internet company, formerly recognized as Facebook. The company is engaged in the development of applications for social networks and both software and hardware for virtual reality headsets.

Employing AI tools, Meta Platforms effectively tackles issues such as spam, misinformation, and other harmful content within its range of applications. Moreover, AI plays a crucial part in enhancing the quality of digital advertising, query analysis, purchasing processes, and tailoring activity feeds across Facebook, Instagram, and WhatsApp.

Meta Platforms is gaining investor confidence due to its active participation in shaping the metaverse — a worldwide virtual environment. Projections indicate that by 2024, the metaverse has the potential to yield 800 billion dollars, and with an anticipated annual growth rate of 13.1%, it could reach a staggering 1.6 trillion dollars by 2030.

The company’s stocks have surged by 175.98% since the beginning of the year. The graph clearly indicates that there is still potential for further growth.

C3.ai

C3.ai’s (ticker: AI) artificial intelligence stocks have surged by an impressive 263% this year, even though their performance wasn’t groundbreaking and their leadership might not have been as remarkable. The company’s financial results still show losses, and the revenue for the last quarter remained relatively stable, exhibiting only slight growth compared to the previous year.

Despite analysts revising their upward target prices for technology stocks, the consensus forecast from analysts stands at a mere $24.36, suggesting a potential risk of nearly 40% decline from the current trading level of C3.ai stocks. The stocks are currently trading at a price-to-earnings ratio of 15, more than 4 times their book value.

Given the current state of the business, it seems the stocks might have peaked. However, this could change if the company achieves success this year.

According to forecasts, the company’s revenue by the fiscal year 2024 (ending in April) is projected to reach up to $320 million. This reflects a 20% increase compared to the previous fiscal year. While this is an improvement compared to the less than 6% growth the company achieved last year, investors might have expected more given the growing popularity of AI this year.

The risk associated with the stocks lies in their beta value, which is around 1.4, indicating high volatility to investors. This means that a decrease in profits could significantly impact the direction of the stocks. If you’re not prepared to ride the roller coaster with these stocks, it might be better to adopt a wait-and-see stance with C3.ai to observe whether they can transform into fast-growing stocks.

Although this year has been favorable for investors, C3.ai may face significant challenges in 2024 as AI gains prominence across many companies. If this is the real deal, the business needs to soar and either surpass expectations or at least reach the highest level. Anything less could be disappointing and lead the stocks into a tailspin.

Upstart Holdings

Upstart Holdings (ticker: UPST) leverages artificial intelligence to aid lenders in making accurate lending decisions. By utilizing numerous data points, the company aims to enhance the efficiency of the lending process.

However, the challenge emerged as interest rates rose. Credit partners showed reluctance to extend loans, given the impending economic uncertainty, resulting in a significant drop in demand. The revenue for the initial three months of the year reached a mere $102.9 million, experiencing a notable 67% year-on-year decrease.

Although there is a glimmer of hope that the upward trend in interest rates might slow down or halt, there isn’t much confidence in the stocks’ potential to continue rising. The stocks have experienced an impressive 499% surge this year, surpassing even the growth of C3.ai. However, with analysts’ consensus target price standing at $18.85, there’s a substantial risk that the stocks could potentially lose over 60% of their current value.

Investors are also paying a premium for these artificial intelligence stocks, which are trading at 6 times earnings and 6 times book value. The risk associated with Upstart Holdings is even higher than that of C3.ai, given its beta value of nearly 1.6.

Upstart Holdings’ revenue trajectory is susceptible to sudden and significant shifts due to changes in demand. This makes it potentially even more precarious compared to C3.ai.

Even if companies maintain an optimistic stance regarding AI prospects, their enthusiasm might be tempered by concerns over the economic landscape. Until economic prospects brighten and credit demand picks up, it’s advisable to exercise caution when considering the purchase of Upstart stocks.