Today, the hottest stocks in the market are companies with exposure to artificial intelligence (AI).
As is often the case, I find myself leery of what’s “hot.”
Buying hot stocks often results in investors getting burned.
In the past, I have helped Wealthy Retirement readers avoid some serious investment pain by steering clear of trendy, overvalued stocks.
In June 2020, when electric vehicle (EV) stocks were soaring, I advised investors to stay far away from the inflated shares of EV maker Nikola Corp. (Nasdaq: NKLA).
Since then, Nikola shares have collapsed by 96%!
I provided a similar warning about skyrocketing “stay-at-home stocks” during the early months of the pandemic.
My advice then was to avoid both the videoconferencing company Zoom Video Communications (Nasdaq: ZM) and the remote doctor’s visit provider Teladoc Health (NYSE: TDOC).
Both of these stocks have also suffered severe declines, as the stay-at-home trade ended with a thud.
Now the AI sector is the hot area of the market, and the one AI stock that I plan to stay far away from is C3.ai Inc. (NYSE: AI).
Just the fact that “AI” is in the company name and is the actual ticker symbol of the stock gives me a bad gut feeling.
And there are other major warning signs.
If you dig into the company’s history, you will find that C3.ai has changed its business focus multiple times.
Initially, the company was founded as “C3.”
The “C” represented carbon, and the “3” stood for the threefold mission to “measure, mitigate and monetize.”
At that time, there was a lot of market interest in carbon capture technology.
After that, the company changed its name again to C3.IoT.
In this case, “IoT” stood for “Internet of Things,” which was another hot sector for a while.
Now the company has rebranded itself as C3.ai.
This isn’t a business with a great underlying strategy or technology.
This is a management group that is constantly pivoting and hoping to profit from being loosely attached to whatever is trending.
In 2023, C3.ai has seen its stock swept up in the AI euphoria.
With that increase in the company’s share price, C3.ai now sports a market valuation of over $4 billion.
For that $4 billion-plus valuation, investors are buying a company that posted a loss of $270 million last year and saw operations burn through $115 million in cash.
There are no financial results that are driving this stock market success.
There are red flags all over the place, and the final one is the massive short interest that C3.ai has attracted.
Currently, almost 40% of C3.ai’s shares have been sold short, which tells us that a lot of smart money sees a major share price decline in this company’s future.
The Value Meter rates C3.ai as “Extremely Overvalued.”
If you have a stock that you’d like to have rated by The Value Meter, leave the ticker symbol in the comments section below.