Machine learning stocks are synonymous with artificial intelligence. Both have boomed in 2023 as generative AI takes hold. The phenomenal growth of the sector has been led by Nvidia (NASDAQ:NVDA) whose chips have become a must have. Nvidia has put its money where its mouth is and provided exceptional results all along the way.
It’s led to a situation in which anything and everything machine learning has tended to move up whether deserved or not. That situation is changing as the initial fervor gives way to a reality that AI/ML is still a regular sector populated with companies worth buying and worth selling.
Upstart Holdings (UPST)
The market’s reverence for Upstart Holdings (NASDAQ:UPST) and its stock is totally irrational. Once you’ve seen a few cycles of the stock market, patterns begin to emerge. That’s why I strongly believe UPST shares are going to burn a lot of shareholders sooner or later.
The company leverages machine learning and artificial intelligence to govern its cloud-based lending platform. Upstart Holdings focuses on the consumer credit lending sector and uses its technology in a way that purports to democratize lending through the power of ML/AI. That’s all well and good in theory.
In practice, investors have seen similar stories before. I’ve made this comparison before and I’ll make it again: Simply look back at the AI-based algorithms that couldn’t account for the realities of the housing market throughout the last few years. Upstart Holdings is offering a similar solution with the same risks.
If you like massively increased losses paired with declining revenues, then UPST shares may be just what you need.
Veritone (VERI)
Veritone (NASDAQ:VERI) certainly has broad appeal for machine learning investors. For one, it’s very inexpensive and trades for less than $3. ML has exploded and prices have risen along with that explosion so it’s understandable that such a low price has appeal. Of course, penny stocks trade cheaply for good reason. In many cases, they don’t live up to the hype.
That’s true in the case of Veritone which offers a suite of solutions under its aiWARE brand umbrella. Those solutions promise to help enterprises derive actionable insights overall and apply to a broad range of sectors and industries. Enterprise AI applications are a hot sector so Veritone is playing in fertile ground.
It just hasn’t been able to make it work. Revenues are down and losses are up in both Q2 and H1. If you like, we’re entering a new period within the typical bell curve of adoption where the wheat gets further separated from the chaff. Veritone is the latter.
iRobot (IRBT)
iRobot (NASDAQ:IRBT) sells intelligent home cleaning appliances. Its Roomba vacuum and Braava mop are well-known products that clean for you. Its stock hits on a lot of trends including AI/ML and Internet of Things (IoT). It’s easy to see why investors might see it as a worthwhile growth play given how many trends it touches.
However, in my mind, iRobot doesn’t benefit much from ML/AI. Not in a meaningful way anyhow. A Roomba or Braava machine isn’t improving by leaps and bounds due to the advent of machine learning and artificial intelligence. Productivity and efficiency gains were already maximized within its products and AI won’t do much to increase those factors.
Further, and here’s the real issue with IRBT, its products are expensive in a time during which consumers are stretched thin. $400 mops are luxuries. That’s reflected in the company’s top-line contraction in Q2 which is the most important reason to be wary of IRBT overall. Revenues will be further threatened by recession fears making its troubles worse.
On the date of publication, Alex Sirois 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.
