3 Stocks to Ditch Ahead of the Coming Tech Tumble: June 2024
How long can the tech stock rally continue? For almost two years now, growth companies have seen their share prices skyrocket amid breakthrough discoveries in fields such as AI and semiconductors.
But the good times for tech stocks won’t last forever, even if macroeconomic policy remains favorable. At some point valuations simply get too far ahead of fundamentals and a correction hits.
And for companies that have weaker or less proven fundamental stories, the coming pullbacks could be especially steep. These are three stocks to sell that have ridden the AI and technology wave recently but could be set to crash in coming months.
SoundHound AI (SOUN)
The AI revolution is upon us, but not all companies with AI in their names are guaranteed to profit from their trend. For example, consider SoundHound AI (NASDAQ:SOUN).
SoundHound AI leapt to prominence following the disclosure that Nvidia (NASDAQ:NVDA) took a small stake in the company. That makes sense, as SoundHound offers a SaaS-enabled system for integrating voice AI into software and applications.
The company’s Houndify platform should help developers build voice assistants and other AI-enabled conversational tools. The company is succeeding, with revenues doubling from $21 million in 2021 to $46 million in 2023. However, that is still a small level of overall revenues, and the company continues to post quarterly losses. Additionally, in its most recent quarter, Soundhound AI noted that just two of its customers account for 48% of its revenues, suggesting a high degree of risk if a key client were to leave.
Adding to the concerns among AI stocks, a new factor also emerged. InvestorPlace contributor Matthew Farley recently highlighted rising antitrust concerns as a factor that could limit dealmaking and constrain valuations in the AI space.
BigBear.ai (BBAI)
While meme stocks had a resurgence in popularity in recent weeks, there appears to be little that can turn things around for BigBear.ai (NYSE:BBAI).
BigBear has a catchy name, but the underlying business failed to catch on. In fact, with its latest earnings report, the company generated a loss of 22 cents per share, far worse than the expectations for a mere 6-cent loss. Revenues of just $33 million fell far short of the $44 million expectations, and represented a 22% year-over-year decline.
Stop and think about that for a minute. In the midst of the biggest imaginable AI boom possible, BigBear.ai’s revenues plunged 22% over the past 12 months. This certainly would suggest that BigBear.ai’s solutions aren’t riding the generative AI wave to any extent.
That probably shouldn’t be too surprising. BigBear.ai’s product offering is more in the industrial and defense analytics space. There will certainly be a business to be had helping clients such as the U.S. Army with its IT and data analytics. But most investors probably imagine something more glamorous when thinking about AI than BigBear.ai’s more sedate government contracting operations.
Core Scientific (CORZ)
Core Scientific (NASDAQ:CORZ) delivered a tremendous comeback story.
In late 2022, Core Scientific went into bankruptcy reorganization. However, the company continued operations and shares reemerged earlier this year, and have since skyrocketed.
The latest jump came on news that CoreWeave was looking to acquire Core Scientific for $5.75 per share in cash. Core Scientific rejected this offer.
Aside from that, CoreWeave also entered into a series of contracts, spanning 12 years, which will generate about $3.5 billion in revenues for Core Scientific. This comes as Core Scientific pivots some of its business from cryptocurrency mining over to AI-enabled data centers.
Given that the previous iteration of Core Scientific ended up in bankruptcy restructuring, this pivot seems like a sensible strategy. However, 12 years is a long time for that $3.5 billion deal backlog to play out, and in the meantime, CORZ’ market capitalization already topped $1.5 billion.
The stock is also above $9, which is well above both CoreWeave’s spurned takeover offer along with where CORZ shares were trading just a month ago. All this to say that any reversal in sentiment around AI datacenters could cause CORZ stock to give back much of its recent rally.
On the date of publication, Ian Bezek 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.
