The AI economy is changing quickly. So quickly in fact, that investors are having a hard time deciphering which Ai stocks are fascinating and which may be fads? The answer is likely to come from how companies can answer the “so what?” or maybe a better question, “now what?”, as it relates to AI.
In this past earnings season, Wall Street Zen noted that companies mentioned AI a whopping 7,358 times. That’s not surprising when you consider that companies that mentioned AI saw average stock gains of 4.6%.
But now that AI is here, how will companies use it and how will they monetize it? Those are questions that investors are waiting to hear from companies like Palantir (NYSE:PLTR). The AI stocks that do will command and justify a premium valuation. Those that can’t are likely to struggle in the short term.
According to PwC, AI is likely to contribute $15.7 trillion to global gross domestic product by 2030. So this is a sector that investors should watch for long-term opportunities. Here are two AI stocks to own for the long haul and one to avoid in the short term.
Stock to Own: Amazon (AMZN)
Amazon (NASDAQ:AMZN) is incorporating AI across both its e-commerce and its cloud business unit. This will help shore up the company’s bottom line which was an area of concern for investors and one reason that AMZN stock took a 43% nosedive in 2022.
The company is forecasting a 38% increase in earnings in the next 12 months and AI is a big reason why. The tech giant recently announced its intention to invest up to $4 billion in the AI firm, Anthropic. This would fit nicely with Amazon’s intention to create a rival service to ChatGPT that it will incorporate into its Alexa voice assistant.
Even before Amazon’s announcement of its investment in Anthropic, analysts were reitierating their buy rating for the stock. Recent price targets support the consensus outlook for $161.22 per share which is a 26% increase from the current AMZN stock.
Stock to Own: UiPath (PATH)
UiPath (NASDAQ:PATH) is a leader in robotic process automation and business process automation. A core part of the company’s business is the way it automates repetitive tasks such as claims processing, bookkeeping as well as risk management and fraud detection.
However, what is moving the needle for analysts is the company’s push into generative AI. UiPath has established partnerships with the aforementioned Amazon and Alphabet (NASDAQ:GOOGL) which is likely to expand the company’s business.
PATH stock went public in 2021. Despite going public by way of a traditional initial public offering (IPO) and not by way of a special purpose acquisition company (SPAC), the stock is down 78% since its debut. That’s not surprising for a company that isn’t profitable. However, that could be changing. UiPath posted its most profitable quarter ever in the second quarter of 2023.
Short interest is still more than 10% on the stock, so investors may want to wait before taking a position. However, having high short interest also means that the stock may move up sharply if sentiment changes.
Stock to Avoid: C3.ai (AI)
It may seem counterintuitive to declare C3.ai (NASDAQ:AI) one of the AI stocks to avoid. After all, the company has AI in its name! The company offers its enterprise customers a comprehensive AI application platform that includes a portfolio of turnkey AI apps.
In one way it seems like a company that’s doing exactly what investors are looking for. In this case it’s helping answer the question of “now what?” as it relates to AI.
The problem is that AI stock simply looks overvalued. The company is not yet profitable and revenue growth is slowing. The company pulled its previous forecast in which the company would turn a profit some time in 2023.
Importantly, institutional investors, which only account for about 38% of the stock, have been selling more than buying in two of the last three quarters. By itself, that’s not a reason to sell. However, there appears to be better opportunities at this time.
On the date of publication, Chris Markoch 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.
