Artificial intelligence (AI stocks they should avoid.) continues to be the main focus of the technology industry this year. It is also arguably the most over-hyped area of the tech sector right now, leading investors to try and root out which over-hyped
Some analysts and industry observers have gone so far as to proclaim that a bubble has formed in AI stocks which is likely to burst in the coming months. Hyperbole aside, there is no arguing that AI has exploded in the last six months following the introduction of ChatGPT and other chatbots that use large language learning models to perform tasks ranging from writing school essays to coding video games.
The market outlook for AI is truly extraordinary. Market research firm Statista forecasts that the value of the global AI industry will grow 20x by 2030, from $100 billion to nearly $2 trillion. The key for investors is to distinguish the legitimate contenders in the AI space from the imposters. Here are the three most over-hyped AI stocks to sell in May.
PROS Holdings (PRO)
Don’t be fooled by PROS Holdings (NYSE:PRO). The company’s stock might be up 14% this year as it rides the wave of hype surrounding AI, but over the past five years the company’s share price has fallen 13%. It is down 63% from an all-time high of $75 reached in 2019 before the pandemic. As a long-term investment, PRO stock has been a disappointment. The company is getting some attention this year as investors seemingly buy into anything related to AI, but the current rally is unlikely to last.
PROS Holdings makes an artificial intelligence-based software-as-a-service platform that identifies the preferences of online shoppers and then targets them with advertisements and promotions. Companies that use its AI platform include airlines, vehicle manufacturers and pharmaceutical companies. While its business model might sound decent, the company has struggled for years with poor earnings and financial losses. Most discouraging is the fact that although it has been in business since 1985, PROS Holdings remains unprofitable.
Chinese tech giant Baidu (NASDAQ:BIDU) is another company that has built some momentum in recent months on AI hype but whose long-term performance is sorely lacking. In the past six months, BIDU stock has gained 58%, largely due to investors betting on its AI chatbot, called Ernie Bot, which the company has positioned as a competitor to ChatGPT. However, looking out five years, Baidu’s share price remains down 52%. The stock has lost 65% of its value since peaking in February 2021.
As for Ernie Bot, the Chinese chatbots public introduction was an epic fail that earned Baidu much criticism and ridicule. What became clear from the reveal is that Baidu is nowhere near ready to launch a generative AI model capable of competing against ChatGPT or even Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Bard large language learning model. The Ernie Bot debacle caused BIDU stock to fall 10%. The share price has since recovered from that decline, but don’t buy the hype surrounding Baidu or its AI offerings.
Riskified (NYSE:RSKD) is a newer name in the world of AI and a newer stock. The Israeli software company that uses AI to detect fraud in e-commerce transactions went public barely two years ago in 2021. Since then, things have taken a dark turn, with its share price down 82% and trading as a penny stock. The effectiveness of its AI application continues to be debated in online chat rooms, while many analysts continue to avoid the company and its stock.
Also pulling RSKD lower is the fact that the company remains unprofitable and continues to spill copious amounts of red ink. Most recently, Riskified forecast a loss of $22 million to $27 million for 2023. The company is also struggling to sign up e-commerce companies that have been preoccupied with a slowdown in their own business coming out of the pandemic. Make no mistake, Riskified is one of the most over-hyped AI stocks to sell in May.
On the date of publication, Joel Baglole held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.