Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) artificial intelligence-powered search engine, Google is under scrutiny for potentially devastating media outlets. All on speculation its AI Overviews could significantly reduce visibility and traffic to other websites. This forms the catalyst of my list of AI stocks to sell.
A study estimates that websites might lose up to 64% of their organic traffic due to these AI Overviews. Additionally, Google faces accusations of scraping copyrighted news articles without credit or compensation.
Not only is this bad news for Alphabet, but it also sparks a broader discussion about the ethical implications and competitive practices in the AI industry. If this accusation goes to court and ends up in a ruling against Alphabet, I think it could unleash a floodgate of similar lawsuits against other AI companies. All of which could potentially throw a spanner in the works to its long-term commercialization.
With that being said, here are three AI stocks to sell.
C3.ai (AI)
C3.ai (NYSE:AI) provides enterprise AI software solutions to accelerate digital transformation. The company has a range of AI applications for different industries. C3.ai’s heavy reliance on a few major clients and its aggressive growth strategy makes it vulnerable. In addition, doubt in the legal arena around AI’s use case could further complicate matters.
On the bright side, AI stock reported a smaller-than-expected fiscal fourth-quarter loss while revenue topped estimates. Full-year fiscal 2025 guidance for C3.ai stock came in above expectations amid strength in its federal government business.
Before the earnings announcement, nearly 30% of C3.ai’s shares were shorted. The better-than-expected results led to a short squeeze, pushing the stock higher.
However, AI’s valuation has now become inflated, trading at around 12-times sales. This is a far cry from its pandemic highs, but it still may be overvalued, especially with anti-trust headwinds on the horizon.
SoundHound AI (SOUN)
SoundHound AI (NASDAQ:SOUN), a company specializing in voice AI technology, provides voice-enabled solutions across various industries.
In its recent first-quarter report, SoundHound posted an adjusted loss of 7 cents per share on sales of $11.6 million, better than the expected 9 cents per share loss on $10.1 million in revenue. This performance marked a significant improvement from the previous year’s 8 cents per share loss on $6.7 million in sales.
However, there is still a dark cloud hanging over SOUN’s outlook from a short seller report that was published in March. The report claimed that SoundHound’s speech recognition technology is a “commodity service,” competing with similar products from companies like Alphabet. It also stated that SoundHound’s closest competitor, Cerence, invests significantly more in research and development and has been capturing SoundHound’s customers.
This AI uncertainty may be the last thing that SOUN needs right now, and it could be enough speculation for investors to give up investing in the company.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) collects vast amounts of data from user interactions, such as posts, likes, comments, and messaging. This data is utilized to personalize user experiences, target advertisements, and more.
META has already been under fire under alleged anti-trust grounds. In April it requested a judge to dismiss the US Federal Trade Commission’s (FTC) antitrust lawsuit, which seeks to break up the company by unwinding its acquisitions of Instagram and WhatsApp.
Also, India’s proposed antitrust law, modeled after the European Union’s regulations, poses new challenges for tech giants. The “Digital Competition Bill” targets “systemically significant digital” companies. The law aims to address the growing concentration of market power among a few large companies, which the panel argues creates an imbalance in bargaining power.
With META already having use of user data and a lot on its plate from a regulatory perspective already, it could be another one of those AI stocks to sell given these headwinds.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
