Stocks to sell

3 Overvalued AI Stocks to Sell BEFORE the Coming Reckoning

Right now is a great time to scour the market for overvalued AI stocks to sell. While artificial intelligence (AI) holds tremendous long term growth potential, many companies are making very little, if any tangible progress. 

The truth is that most of the gains in the S&P 500 Index this year are due to mega cap technology companies like Nvidia (NASDAQ:NVDA) and Microsoft (NASDAQ:MSFT). These giants are leading from the front and advancing the sector at rapid speeds. However, many of the smaller players that are making investments are set to continue losing money. 

In the back half of 2024, earnings growth will become more important with stock prices remaining elevated. Additionally, if a sharp correction were to occur the stocks reporting massive operating losses risk facing a significant decline in their share prices. Therefore, it is paramount to consider offloading these companies ASAP for when the AI momentum decelerates. 

Here are the top three overvalued AI stocks to sell BEFORE the coming reckoning!

Snapchat (SNAP)

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Snapchat (NYSE:SNAP) is the first on the list for overvalued AI stocks to sell in 2024. After an abysmal operational year in 2023, the company is likely to face an uphill battle in the years ahead.

Snapchat is a well-known technology company that had its time in the sun in its earlier years. The company’s user growth metrics were robust in the 2010’s when competition was less stiff. However, with the emergence of TikTok and industry giants like Meta Platforms (NASDAQ:META), its growth might stagnate. In the past year, Snapchat’s advertising business struggled immensely, leading to significant declines in its earnings and cash flow.

Moreover, amidst this struggle it is making blockbuster investments in AI and augmented reality. In the 2023 fiscal year, loss from operations totaled $1.32 billion, with daily active users (DAUs) up 10% year over year to 414 million. Although its platform and premium Snapchat Plus is growing, its investments are yet to pay off. Its competition is in much better shape financially, making betting on Snapchat’s AI ambitions a gamble.

BigBear.ai (BBAI)

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BigBear.ai (NYSE:BBAI) is another stock in the AI sector that is ripe for further declines. While the company boasts an impressive portfolio of AI solutions, its financial performance is extremely underwhelming.

BigBear.ai surged back in February largely driven by the speculative nature of the AI sector. Its stock price more than tripled with traders on wall street bidding up nearly every name with ties to artificial intelligence. While BigBear.ai holds some high-profile intelligence contracts with the U.S. Army, it has failed to turn any of its successes into profits.

Additionally, management’s poor operational execution and high cash burn rate raises questions about its ability to ever turn a profit in the future. In its latest quarterly results, revenue declined 21% year over year to $33.12 million. Loss from operations hit a staggering $125 million, with cash on hand of $81.4 million. Furthermore, BigBear.ai is up against steep competition from established players like Palantir. With the market honing in on earnings growth, BBAI stock is one of the top overvalued AI stocks to sell now.

SoundHound AI (SOUN)

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SoundHound AI (NASDAQ:SOUN) is the final pick among the top overvalued AI stocks to sell. The company’s share priced more than doubled in 2024, a surge that should concern investors about its lofty valuation. 

SoundHound AI, a voice-AI and speech recognition company launched nearly 2 decades ago. Its products which include natural language understanding (NLU), smart answering, and sound recognition find use in a wide range of industries from hospitality to automotive. Since the pandemic, its revenue has accelerated as demand for its voice solutions have been high.

However, even despite this exciting news the stock price has gotten way ahead of itself. The company currently boasts a valuation of $1.7 billion, remains unprofitable, and its competition is fierce. SoundHound competes with giants like Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, GOOGL), who both hold domain expertise in this space. Additionally, Nvidia’s tiny 0.6% stake in the company is certainly not ‘’game changing’’ news. Until the company becomes profitable, investors should stay far away to avoid disappointment when the stock inevitably comes back down to reality. 

On the date of publication, Terel Miles 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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Terel Miles is a contributing writer at InvestorPlace.com, with more than seven years of experience investing in the financial markets.

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