9 Stocks to Sell as AI Surges Ahead

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new technologies - 9 Stocks to Sell as AI Surges Ahead

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I’ve got a surprising fact for you:

New technologies are often astonishingly S… L… O… W… to take off.

In 1950, there were only 25 million registered vehicles in America, or one for every six people. Though Henry Ford had introduced the Model T more than four decades earlier, many families still saw no reason to buy a car.

That’s because, besides “working,” cars — like all new technologies — needed three other ingredients to succeed:

  1. Infrastructure. Cars need roads, gas stations and service centers.
  2. Culture. People must want to drive.
  3. Incentives. Car-friendly regulations need to be in place.

In the automobile’s case, the technology required the National Highway System expansion of 1955, suburbanization and a rise of American car culture before it could truly take off. By 1970, there were 118 million cars on the road. By 1990, almost 200 million.

The automobile also illustrates how these three ingredients develop in phases. The Official Microsoft Blog calls December 20, 1922, “The Day the Horse Lost Its Job” after New York City’s last horse-drawn fire wagon was replaced with a motorized engine. Streetcar usage declined soon after, when motor cars began clogging up streets. It would take several more decades for railways to eventually succumb; between 1967 and 1972, six major railroads went bankrupt after competition from trucks and other intermodal transport options ate into profits.

The same was true for the fax machine, the personal computer and … even the internet. Infrastructure, culture and incentives are built in stages. That’s why Amazon (NASDAQ:AMZN) “beat” booksellers decades ago, yet still has trouble competing against fresh grocers and big-box stores like Costco (NASDAQ:COST).

Today, the same battle is taking shape with artificial intelligence.

Some businesses will survive for decades against this new technology. Surgeons, structural engineers and hang-gliding instructors all work with life-or-death situations. So, while AI might enhance the jobs in the near term, it would take significant cultural and regulatory shifts to replace these positions with AI.

But other companies are already beginning to struggle. These firms are finding themselves on the wrong side of history… and are failing to mount a counteroffensive.

This week, the writers and analysts at InvestorPlace.com consider three categories of firms – and nine stocks among them – that are especially exposed to “losing their job” in these early days of artificial intelligence…

Low-End Content Creation: Where AI Will Hurt the Most

A photo of a person's hands on a laptop keyboard. Several notebooks are on a desk surrounding the laptop.
Source: Undrey / Shutterstock.com

The lowest-hanging fruit for an AI takeover may be generic content creation – the stock imagery, clickbait articles and other low-quality content you see online.

That’s because AI already has the three ingredients to compete:

  1. Infrastructure. AI-generated content is now often indistinguishable from generic human-created stuff.
  2. Culture. Consumers are becoming more accepting of low-quality AI-generated content.
  3. Incentives. Regulations around AI-generated content is lax, so companies have an incentive to cut costs by using AI.

NBC, for instance, found it wise to launch an AI version of announcer Al Michaels to read sports recaps from the Paris 2024 Olympics. Similarly, here are three companies that could soon see their content-producing “jobs” replaced by AI:

  • Shutterstock (NYSE:SSTK). This week at InvestorPlace.com, Thomas Niel notes that Executive Chairman Jonathan Oringer is selling millions of dollars’ worth of shares into strength – a big red flag in his book. The company specializes in stock images and footage, which are at risk of being replaced by AI-generated content.
  • IZEA Worldwide(NASDAQ:IZEA). InvestorPlace Chief Investment Analyst Luke Lango previously turned bearish on this content creation firm… in 2021. He saw how much trouble the firm’s influencer-marketing-as-a-service was running into. Now, at InvestorPlace.com, we note how the firm is missing on earnings and revenues – a bearish sign of more losses to come.
  • Fiverr International (NYSE:FVRR). In April, Ian Bezek noted that there were good reasons to be skeptical of Fiverr, an online marketplace for freelancers offering their services. He notes that AI will be able to perform many rudimentary tasks offered by Fiverr in coming years. A recent 20% price spike now gives investors an ideal window to take profits.

Midtier Services: The Next to Fall

A stack of open textbooks on a table in front of a chalkboard background.
Source: Shutterstock

Professional services will be the next area to worry about. This segment still lacks some of the infrastructure required to turn AI into usable products. (Data collection remains a fragmented and incomplete industry, making it difficult to train specialized AI.) There’s also a culture issue of relying on AI to do important (though nonessential) tasks. The IRS will probably reject “AI did my taxes” as a reason to waive tax penalties.

Nevertheless, it’s only a matter of time before AI grows “smart” enough to compete. Our analysts find two companies that are already seeing earnings drop as a result.

  • Chegg (NYSE:CHGG). Louis Navellier and his team note that Chegg is facing some critical problems due to the rise of artificial intelligence. Generative AI platforms are able to help students – and even do work for them – cutting into demand for the homework assistance and online tutoring services that Chegg provides. Earnings are expected to slide 8% this year.
  • 2U (NASDAQ:TWOU). Muslim Farooque warned in January that online education firm 2U was struggling with mounting debt costs and continuous cash burn. Shares have fallen 82% since that article. The rise of AI is now compounding this issue, because chatbots are increasingly able to tutor and help with homework. This month, 2U announced it will do a 1-for-30 reverse stock split, which is a historic sign of more losses to come.

Crowding Out: The Small Become Smaller

a stock image of a person working on data charts using a futuristic computer.
Source: Shutterstock

Finally, the rise of AI will favor larger tech companies with access to data and enough computing power to use it. To borrow the same automobile example from earlier, it’s like Ford Motor (NYSE:F) or General Motors (NYSE:GM) using its dominant positions in the 1920s and 1930s to develop more powerful and efficient engines, crowding out smaller players like Brewster, Durant Motors and hundreds of others.

That puts smaller firms at a disadvantage, as the writers at InvestorPlace.com note this month. AI is already consolidating some fragmented markets, and the trend will only continue as artificial intelligence widens this gap between the “haves” and “have-nots.”

  • Veritone (NASDAQ:VERI). Muslim Farooque observes that this AI-powered media and advertising company is at the mercy of Amazon. Veritone relies on the tech giant for 30% of its sales, and its data intelligence offerings could be quickly eclipsed if the tech giant horizontally expands into the space. Viktor Zarev goes further and calls Veritone another generic AI service provider with no competitive moat.
  • BigBear.ai Holdings (NYSE:BBAI). Ian Bezek writes how this AI data mining and analytics firm is losing significant contracts at a time when larger rivals are growing. “Stop and think about that for a minute,” he notes in a recent update. “In the midst of the biggest imaginable AI boom possible, BigBear.ai’s revenues plunged 22% over the past 12 months.” The company competes directly against public cloud firms like Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL), which have far greater financial resources.
  • SoundHound AI (NASDAQ:SOUN). Tyrik Torres calls SoundHound an overhyped stock to sell before it crashes and burns. He notes that the the company’s product is “not very unique” from what is already on the market, which puts it in direct competition with better-funded firms like Apple (NASDAQ:AAPL) and Samsung, which have their own top-tier vocal-recognition software.
  • Intel (NASDAQ:INTC). Finally, Louis Navellier and his team observe this week that Intel continues to fall behind rivals. “AI and foundry growth revival is far from a near-certainty for INTC,” they say. They see shares falling into the mid-$20s by 2025. Analysts predict the firm will only grow its research and development (R&D) budget in the low single-digits through 2027, right as rivals are upping their R&D spending by 60% or more annually.

The Internet… but 10X Bigger

The AI developments I’ve been describing are exactly what happened with the internet in the early 2000s. Poorly run firms without the ability to adapt were the first to get wiped out. Service providers like travel agencies were next. Finally, smaller tech players disappeared as large internet firms took over.

And almost all new technologies follow this same arc.

But major technologies and the investing mania that follow them don’t come around very often… maybe once every generation. In fact, Louis Navellier is predicting that AI will be the last major financial mania that he or anyone over the age of 50 will see in time to capitalize on it.

Louis talks about all that – plus what “financial mania” could lead to the rise of a “New America” that’ll be almost unrecognizable to anyone from our generation – in more detail in his brand-new special event, Prediction 2024.

You can check out that free event by going here.

On the date of publication, Thomas Yeung owned shares of Alphabet (GOOG, GOOGL). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Yeung is a market analyst and portfolio manager of the Omnia Portfolio, the highest-tier subscription at InvestorPlace. He is the former editor of Tom Yeung’s Profit & Protection, a free e-letter about investing to profit in good times and protecting gains during the bad.


Article printed from InvestorPlace Media, https://investorplace.com/2024/07/9-stocks-to-sell-as-ai-surges-ahead/.

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