AI stocks are controversial for multiple reasons. One of the most obvious factors is that AI poses a threat in many ways. It threatens the job security of various jobs, poses a potential challenge to human intelligence, and presents many other issues. So, it’s certainly bound to cause controversy and spark interesting discussions.
However, the AI stocks discussed here are also controversial because investors are beginning to question their valuations. The markets collectively pause to digest the massive run-up and value increases this year. Thus, much of the controversy simply refers to whether a given share is likely to be readjusted downward. Let’s look at those angles.
Symbiotic (SYM)
Symbiotic (NASDAQ:SYM) is an automation firm that leverages AI and robotics to rebuild the traditional warehouse. From the human-centered perspective, it is very easy to see why it is a controversial company and stock. AI clearly threatens the livelihood of workers who engage in warehouse work, and few things are as controversial as that.
Of course, Wall Street is less interested in that consideration and more interested in the value of the shares. I fully expect that Symbiotic continue to experience a correction through September. Investors are less interested in notions like that Walmart (NYSE:WMT) is invested in the company and more interested in bare financial truths.
The company has experienced tremendous growth – 77% in Q2 – but that is slowing. The company firm gave guidance that its top-line results should be flat between Q2 and Q3. That’s not the same as year-over-year growth, but it still matters. Further, Symbiotic’s losses nearly doubled in H1, reaching $162 million. Economic reality is meeting the AI hype, and Symbiotic’s price-to-book ratio is a great indicator for those looking to get into the pure numerical arguments against buying it.
Palantir (PLTR)
Investing in Palantir (NYSE:PLTR) stock means putting one’s capital behind a firm that is heavily involved in data analytics and the U.S. Defense sector. Volumes upon volumes of books, text, conversation, and more have centered on that topic and will undoubtedly continue to spark controversy. Add AI to the mix, and it becomes much more so.
Again, though, we’re more interested in the valuation controversy regarding Palantir than anything else. I don’t think Palantir will fall below $14 anytime soon. That’s roughly the level at which Wall Street has pegged its share value. However, shares have risen just above that level based on excitement around AI. In this case, though, the excitement was warranted. Palantir reported its third consecutive quarter of GAAP net income-based profitability. AI has helped it get to that point.
Because of that, I don’t expect investors to pull their capital out of Palantir in droves. It may have received attention due to its AI presence, but its raw fundamental strengths also substantiate it as a business. Don’t invest if you have qualms about it’s business; that’s fine. However, it isn’t overvalued by much, if at all.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is a chip stock, which makes it inherently interesting in 2023. Anything and everything related to AI has received attention, with many shares growing rapidly. Broadcom has grown as well, rocketing from $550 to $850 year-to-date.
Most of those gains occurred in late May when Nvidia announced it was on track to reach $11 billion in revenues. Broadcom provides software to the semiconductor industry, which boomed on the secular opportunity.
Buy Broadcom. For one, it isn’t overpriced based on its price-to-earnings ratio over the past decade. It’s also a highly profitable firm in a highly booming industry with stable fundamentals. Broadcom isn’t going to blow investors away with skyrocketing sales. Instead, it will steadily grow while providing substantial dividend income and rewarding shareholders through buybacks. It looks like Broadcom will succeed in its bid for VMWare (NYSE:VMW), which should only make it stronger and more attractive.
Nvidia (NVDA)
The story of Nvidia (NASDAQ:NVDA) stock and its success in 2023 has been told and retold many times. I won’t bore you with a retelling of it. Instead, I’ll jump directly into my thoughts about its price over the next month or so.
Nvidia won’t be trading at levels lower than $450 in a month. Yes, Nvidia shares have faced a correction through the first few weeks of September. That’s undeniable. However, investors should ask themselves what has precipitated that correction. It’s certainly not results. The number $13.5 billion says more than I ever could in a few paragraphs concerning its results. The firm has only exceeded expectations.
Instead, the correction has been triggered by the fear that Nvidia, as the leader, has become massively overpriced. It isn’t. Nvidia’s current price-to-earnings ratio is nowhere near as high as it has been at previous peaks during the past decade. Investors can’t reasonably argue that Nvidia was more promising in the past than it is now.
C3.ai (AI)
On the other hand, investors should expect C3.ai (NYSE:AI) stock to continue to fall. The enterprise AI firm has been one of the greatest beneficiaries of AI’s emergence in 2023.
However, all of the capital that flowed into the firm would have been better placed elsewhere. In other words, don’t expect the current capital outflows to stop anytime soon.
Investors should not buy C3.ai right now because The company isn’t going to achieve what it previously said it would. The company withdrew previous guidance that it would reach profitability by the end of the year.
Instead, C3.ai is investing cash toward lead generation and sales efforts. The company is right to note that a great opportunity lies ahead regarding enterprise AI applications. It is forging ahead and seeking to plant its flag in that fertile ground. However, it will still be viewed as overpriced, given that the prospect of profitability has been removed for 2023.
Microsoft (MSFT)
Don’t expect Microsoft (NASDAQ:MSFT) stock to suffer in September even as headlines of daily tech sell-offs continue. Even if shares fall below some arbitrary figure, say $320, they will only go up over time.
Microsoft is on track to grow by roughly 10% this year and then approximately 15% next year. The latter figure is near the firm’s most recent 3-year revenue growth figures. Thus, it’s reasonable to expect that the Microsft of today will continue to be the Microsoft of tomorrow: A strong stock overall.
Microsoft grew by 8% in the most recent reporting period. That aligns with the growth I referred to for this year overall. Additionally, the firm’s net income is improving faster than top-line results. The 21% increase in net income suggests strong management. A million things could be written about Microsoft, and most of them point to the idea that it is only getting better as time goes on.
Alphabet (GOOG, GOOGL)
Big-tech stocks like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) will always remain controversial. Most of that controversy stems from Google’s collection of data and the use thereof. Much has been written about it, and more will come. I don’t expect much to change. The company tracks you and me, gets fined nearly $400 million, and continues its business.
Let’s be realistic. It’s a bump in the road, a hiccup, and ultimately, a penalty that the firm would rather avoid. That said, Google is very much willing to pay that fine again and again. The value of that data far outstrips the cost of the penalty. If it didn’t, this wouldn’t happen over and over. Don’t be surprised when the next scandal arises concerning Google’s data collection practices and the application of AI to that data.
Am I saying I know of anything concrete in that regard? No. I’m simply connecting the dots. As an investment, GOOG stock is extraordinarily solid. Realistically, it’s only going to lose value for a long time if a monumental anti-monopoly case emerges. That too is unlikely, given how important the firm is economically.
On the date of publication, Alex Sirois 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.
