“A rising tide lifts all ships.” It’s a simple yet stark reminder of investors’ tendency to overestimate the market’s value when things look green. Case in point: the artificial intelligence (AI) boom is pulling a lot of companies up, and there’s a creeping concern about super-high valuations leading to a strong pullback or, worse, an all-out crash. Even billionaires have started unloading some of their strong AI bets.
Whether this is profit-taking or the early catalyst for massive sell-offs, wise investors know when to look for blood on the streets, which may be a sign to sell weak AI stocks.
Remember, risk comes slowly, then all at once, and then the next thing you know, stock prices start falling out of the sky as hype and demands dry up. So, if you don’t want to be the one left holding the bag, avoid these three AI stocks like the plague.
Nauticus Robotics (KITT)
A champion for sustainable ocean technology, Nauticus Robotics (NASDAQ:KITT) specializes in autonomy software, ocean robot development and various services for the marine industry.
The company uses artificial intelligence in intervention services and data gathering for its autonomous robots. Its leading product platforms include the Aquanaut autonomous robots, ToolKITT cloud software and Hydronaut autonomous sailing vessels and ocean robotics.
Based on the company’s third-quarter report, let me tell you that while the company’s products sound cool on paper, its finances tell a different story. Total revenue fell by 47% year over year, while operating losses increased by 36%, mainly due to a steep rise in general and administrative expenses.
“Currently,” Nauticus admits in the report, “the Company does not generate sufficient revenue to cover operating expenses, working capital and capital expenditures.” That and shrinking revenues and ballooning expenses don’t incite much confidence.
Thoughtworks Holding (TWKS)
Thoughtworks Holding (NASDAQ:TWKS) is a tech consultancy firm specializing in enterprise modernization, data and artificial intelligence, platforms and cloud and product design.
Its services include AI services offering data strategy, mesh, machine learning and governance. The company also provides expertise in enterprise modernization, including digital platform strategy and engineering organization.
The company reported a disappointing fourth quarter. Revenue ended 5% below guidance and fell 18.8% based on the same period last year. CEO Guo Xiao cited “specific supply constraints to meet client demand in addition to continued cautious client behavior within the current macroeconomic environment” as the primary reasons for the company’s underperformance.
While Thoughtworks may have a strong client base — with an additional 46 new clients this past quarter — its revenue has been on a downward slide since 2022. This year doesn’t seem like the turnaround year either, with guidance showing an expected 20% to 21% decline. Adjusted EPS is also anticipated to end at a 1-cent to 2-cent loss.
With both forecast and financials pointing downward, investors should consider throwing Thoughtworks into their “AI stocks to sell” pile for now.
DHI Group (DHX)
DHI Group (NYSE: DHX) offers AI-powered career marketplaces that target tech roles. The company owns two brands, ClearanceJobs and Dice. These platforms allow hiring managers to connect to a network of tech professionals that match their filtering criteria.
The company uses its algorithm to manage over one hundred thousand tech skills and connects professionals to their next career opportunity. Its website also offers recruiting services, career development services and job postings.
DHI’s full-year report was mixed. The top line grew by 1%, and adjusted EBITDA and EBITDA margins also saw double-digit growth. However, the bottom line dropped by 16%, resulting in a diluted EPS of 8 cents. Total bookings were also down 4% year over year.
Despite some positive results, 2024 isn’t likely to be the year DHI turns around. CFO Raime Leeby said the company “expect[s] to result in a low single-digit percentage decline in our total revenue for the full year.”
On the date of publication, Rick Orford 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