Generally, I don’t like to toot my horn – at least not in an obnoxious manner – when it comes to market calls. The equities sector is a cruel place: it can honor you just as quickly as it can humble you. Still, with artificial intelligence-enabled energy storage firm Stem (NYSE:STEM), I just happened to call STEM stock as accurately as you can get.
One of the biggest criticisms that I see among the internet audience across all online media is clickbait titles. Personally, having worked this market for the last few years, it’s a 50/50 conundrum. While I understand the reader’s anger, the reality is that article titles must have some juice to it. Otherwise, no one would read them.
Well, no one’s going to accuse me of clickbait with STEM stock. In my last go-around with the energy tech firm, I suggested as an idea that investors should allow shares to sink some more, then take advantage at a better price. My argument was that despite the underlying potential of the business, fear had taken hold of this trade.
It’s not hard to see why. For one thing, STEM stock incurred wild swings in either direction, making profit predictability difficult. Second, Stem originally became a publicly traded asset via a reverse merger with a special purpose acquisition company or SPAC.
As you know, SPACs became the toast of Wall Street over the trailing year. But up until very recently, they lost much of their original fervor. Part of the reason is that SPACs aren’t necessarily retail buyer friendly. Instead, SPAC sponsors usually take the bulk of the equity. And warrants impose a dilutive effect, making such reverse mergers a less-than-enticing proposition outside the hype.
Still, from the time of publication (May 5) to May 13, STEM stock tanked 27%. Hopefully, you were able to take advantage.
STEM Stock Represents Tech to Believe In
But since May 13, the narrative for STEM stock has changed dramatically. At time of writing, shares are at more than $33, which would give the equity unit an 102% gain. That’s not bad at all for a period extending less than a month.
Still, should investors risk placing a wager? While the move higher certainly brings a level of confidence, there’s also the chance that SPACs could once again disappoint. For instance, while popular former SPACs like Virgin Galactic (NYSE:SPCE) enjoyed a recent resurgence, the June 9 session reminded folks once again that reverse mergers do not necessarily lead to stable securities.
I won’t deny that there are still risks involved with STEM stock. In particular, the broader green energy sector took a hit earlier this year as people questioned its utility and resilience in light of the disastrous Texas winter storm. Nevertheless, the company has a clear advantage: its AI-based solution is a technology you can believe in.
Lately, I’ve criticized AI because it appears investors expect way too much from the innovation. And it’s not just my personal fanciful opinion. John Horgan writing for Scientific American explained:
AI had not lived up to expectations, [computer scientist Frederick Hayes-Roth] acknowledged. Our minds are hard to replicate, because we are “very, very complicated systems that are both evolved and adapted through learning to deal well and differentially with dozens of variables at one time.” Algorithms that can perform a specialized task, like playing chess, cannot be easily adapted for other purposes. “It is an example of what is called nonrecurrent engineering,” Hayes-Roth explained.
With Stem, its AI is doing the equivalent of playing chess but with smart energy management. Mathematically speaking, the number of variables and the framework in which they operate are constant. Therefore, Stem’s AI simply needs to direct energy resources to their most efficient usage. That’s something that AI can do far better than humans.
Stem Remains a Viable Long-Term Investment
If on the other hand Stem’s AI was tasked with predicting the state and federal elections of the U.S. for the next 40 years, I’d be extremely skeptical of the business. As Horgan explains, AI works incredibly well in pre-defined environments. For instance, a chess game operates by known rules and limitations. On the other hand, all’s fair in love and politics.
For the most part – yes, outliers do exist but that’s not the core issue – energy management has a reliable cadence. You can depend on seasonality demand trends to be relatively consistent year after year. And if it’s not, Stem’s AI platform can probably make a better calculation of the most effective resource allocation than a human can.
It’s AI you can trust. And that should help drive STEM stock forward over the long haul.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.