SPECIAL REPORT The Top 7 Stocks for 2024

3 Super Speculative AI Stocks Not Worth the Risk

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  • These companies have issues that can’t easily be overcome.
  • RadNet (RDNT): Its core service is valuable, but its AI push might be a big money-loser.
  • LivePerson (LPSN): Its push into AI is understandable but unlikely to generate profits.
  • Futuretech II Acquisition Corp. (FTII): The AI-focused SPAC is dead on arrival.
AI stocks - 3 Super Speculative AI Stocks Not Worth the Risk

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Except for companies like Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA), I don’t think it would be out of line for regular Investors to consider most artificial intelligence stocks to be speculative by nature. This has led to AI stocks to avoid.

After all, Microsoft itself only started emphasizing AI in 2019. 

“AI opens up so many possibilities. And the limits are very few, generally limited only by your imagination,” Lance Olson, the company’s director of program management for applied AI, said in a May 2, 2019, internal article. “It doesn’t need to be overwhelming for people. We are getting to the point where we can now make AI accessible to a much broader set of customers.”

And, of course, with products such as Copilot, the company’s AI-powered version of Microsoft 365, it has done precisely that.   

However, AI leaders are few and far between. There are a lot of speculative AI stocks that won’t be able to go the distance. Here are three AI stocks to avoid at all costs. 

Radnet (RDNT)

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RadNet (NASDAQ:RDNT) stock is up nearly 72% in 2023. Except for a few days in July, RadNet’s stock hasn’t consistently traded above $30 since July 2021. Before that? Never. 

So, what’s driving RDNT stock? 

Well, you can be sure it’s not its 357 locations providing diagnostic imaging services across seven states. Sure, it generated $1.43 billion in annual revenue in 2022, so it’s not some Johnny-come-lately. However, its operating margin was 3.2%. That’s 3.2 cents for every dollar of sales. 

The most it’s ever made was in 2021 when it earned $82.6 million in operating income from $1.32 billion in revenue, good for a 6.2% operating margin. Except for 2021 and today, RadNet stock’s never traded for more than 1x sales, but here we are more than halfway through 2023, and investors are willing to pay 1.21x sales and nearly 44x earnings before interest and taxes (EBIT)

Two words: artificial intelligence. 

In December 2022, the company announced that its Saige-Density mammography density assessment software had been given clearance from the Food and Drug Administration (FDA). It was the third product to receive the thumbs up from the FDA.

While I’m sure the company’s heart is in the right place, its AI segment lost $116.4 million in the first six months of 2023 from $4.5 million in revenue.

It mentions AI approximately 19 times in its Q2 2023 press release. We got the emphasis. This is not a business worth $2.2 billion. 

LivePerson (LPSN)

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How long has LivePerson (NASDAQ:LPSN) been around? I worked in sales for a Toronto-based digital asset management startup in 2000. My boss was introduced to LivePerson’s services. They’ve been around in one form or another since 1998.

Although its share price is down 56% in 2023, if you measure the losses from its high of $18.17 in February, they’re off by 75% in a little over six months. 

On Aug. 9, the company’s shares jumped more than 13% after it reported Q2 2023 earnings that were better than analyst expectations. On the top line, its revenues were $97.52 million, $670,000 above the consensus. On the bottom line, it earned 12 cents, 50 cents better than the estimate. Throw AI on top of this, and the meme-stock investors will tell you it’s a $30 stock.

The company’s Q2 2023 presentation talks about generative AI and its next growth stage. It points to Fast Company, naming it the most innovative AI company in the world. 

LivePerson argues that the one billion or more conversational interactions its 100,000+ corporate users generate monthly through its platform, combined with generative AI and large language models (LLMs), will give its customers the edge they need to maintain superior service. 

I have no idea if that’s true. I know there have been many innovations in digital customer service since LivePerson first started in 1998. Yet, it last managed to generate an operating profit of $10.3 million in 2012. It’s been nothing but red ink ever since. 

Wait for it to prove that it’s got some AI chops.

Futuretech II Acquisition Corp. (FTII)

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To come up with some ideas for AI stocks to sell, I used the SEC’s Edgar search tool to find companies with annual reports that mention the word AI or artificial intelligence. 

One of the names it spit out was Futuretech II Acquisition Corp. (NASDAQ:FTII), a special purpose acquisition company (SPAC) focused on acquiring a U.S. tech company, preferably one involved in AI or robotics. 

“We believe that we are living in a digital era where AI is poised to reshape our lives. The continuous research and innovation directed by the tech giants are driving the adoption of advanced AI technologies in industry verticals, such as automotive, healthcare, retail, finance, and manufacturing,” pg. 4 of its 2022 10-K states.

Futuretech II raised $115 million in its February 2022 initial public offering. It had 12 months to find a target to merge with, or 18 months if the company used one or both of its three-month extensions. Shareholders weren’t given the right to vote on these extensions. However, the sponsors were required to deposit an additional $1.15 million into the trust account for each extension. 

On May 17, 2023, it made a second payment for a second extension, which expires on Aug. 18. Unless something changes in a hurry, it looks like this bet on AI will go up in smoke with the funds in trust returned to shareholders. 

On the date of publication, Will Ashworth 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.


Article printed from InvestorPlace Media, https://investorplace.com/2023/08/3-super-speculative-ai-stocks-not-worth-the-risk/.

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