Knowing the AI stocks to avoid is just as important as identifying winners in artificial intelligence. AI stocks largely represent companies seen as innovative and disruptive, creating new markets and generating huge returns.
But not every stock can be a winner. The Portfolio Grader evaluates all stocks in the market based on growth potential, debt levels, momentum, dividend performance and analyst sentiment. And even when it comes to AI stocks, some names get a bad rating. Here are some AI stocks to avoid.
Meta Materials (MMAT)
Semiconductor company Meta Materials (NASDAQ:MMAT) develops and produces functional materials and nanocomposites, particularly in lithium battery materials. It develops materials that help prevent batteries from catching fire.
But while the semiconductor space has been red-hot in 2023, Meta Materials remains cold. This year, the stock is down 92% and can be bought for less than a dime per share.
Revenue in the third quarter was $2.2 million, down from $2.5 million in the same quarter a year ago. Operating expenses, meanwhile, were a whopping $16.2 million. The company reported a net loss of $8.7 million for the quarter or 2 cents per share.
Meta Materials is trying to cut expenses to right the ship. And it’s seeking permission from shareholders next month to enact a reverse stock split between 1-for-5 and 1-for-35 to put some sugarcoating on the embarrassingly low stock price.
There’s nothing here to like about this stock in November. MMAT stock has an “F” rating in the Portfolio Grader, making it one of the no-brainer AI stocks to avoid.
SolarEdge Technologies (SEDG)
Solar power has also been an interesting AI play this year. Government subsidies that promote solar technology brought renewed interest in the sector. Solar panels rely on AI chips to function, making the companies legitimate AI stocks.
The bandwagon seems to have left SolarEdge Technologies (NASDAQ:SEDG) behind, however. The company, which makes power optimizers and inverters, helps optimize the power generation of solar panels.
Earnings in the third quarter were a huge disappointment. Revenue of $725.3 million was less than analysts’ expectations of $758.38 million, and while forecasts called for the company to make 89 cents per share, SolarEdge lost 55 cents per share for the quarter.
That led many analysts to downgrade SEDG stock. It’s down more than 70% this year, making it one of the solar AI stocks to avoid at all costs.
SolarEdge gets an “F” rating in the Portfolio Grader.
MaxLinear (MXL)
MaxLinear (NASDAQ:MXL) makes semiconductors for the communications industry. Its products are used for cable and satellite TV reception, broadband data access, wireless infrastructure and networking.
The company experienced a setback earlier this year when it backed out of its planned $4 billion acquisition of Silicon Motion (NASDAQ:SIMO), citing “deteriorating business conditions” at Silicon. Silicon is now pursuing damages against MaxLinear in arbitration, an action that MaxLinear is contesting.
The issue contributed to MXL stock falling nearly 50% this year, with much of the drop coming when MaxLinear pulled the plug. Weakened Q3 earnings haven’t helped the cause, with revenue of $135.5 million down 26% from a year ago.
MXL stock has an “F” rating in the Portfolio Grader.
AXT (AXTI)
AXT (NASDAQ:AXTI) makes compound semiconductor wafer substrates, the base material from which photonics and wireless devices are fabricated. When a typical silicon wafer doesn’t meet performance requirements, they use its wafer substrates.
AXI’s products are used in telecom infrastructure, data center connectivity and consumer devices. They also have uses for the Internet of Things and the automotive sector.
While the company is based in California, it also has a headquarters in Beijing. It maintains three manufacturing facilities in China and partial ownership of 10 Chinese companies that produce raw materials.
However, sales continue to be weak. Revenue for the third quarter was only $17.4 million, compared to $35.2 million in the same quarter a year ago. The company posted a loss of $6.7 million for the quarter, compared to a profit of $4.6 million a year ago.
AXTI stock is down 52% this year and gets an “F” rating in the Portfolio Grader.
SunPower (SPWR)
SunPower (NASDAQ:SPWR) is a solar power company that designs, manufactures and sells solar electric systems used by residential and commercial clients, as well as utility markets.
However, this has been a miserable year for SunPower, which has seen its stock price drop by 75%. And recent news isn’t helping the situation.
SunPower announced in October it will need to restate its financial statements for 2022 and the first two quarters of 2023. It said it overvalued some of its assets by as much as $20 million, resulting in the cost of revenue being understated.
And earnings for the third quarter weren’t great. Revenue of $432 million was down from $476.25 million a year ago. The company reported an operating loss of $28.16 million versus a profit of $10.1 million a year ago.
SPWR stock has an “F” rating in the Portfolio Grader.
Tower Semiconductor (TSEM)
Israeli semiconductor company Tower Semiconductor (NASDAQ:TSEM) makes advanced analog integrated circuits used in automotive, consumer, medical, industrial, aerospace and defense sectors.
The big problem here is that if it were up to Tower Semiconductor, you wouldn’t be able to invest. That’s because Tower had a deal in place to be acquired by Intel (NASDAQ:INTC) in a $5.4 billion deal that valued the stock at $53 per share.
But the deal collapsed when Chinese regulators wouldn’t sign off.
It’s also worth monitoring current events in Israel, which is embroiled in a war with Hamas in Gaza. Tower says that even during the conflict it’s been able to meet all its customer commitments.
Revenue in the third quarter was $358 million, down from $427 million a year ago. Profits of $87 million were down from $125 million a year ago.
TSEM stock is down 38% this year and gets an “F” rating in the Portfolio Grader.
Aurora Mobile (JG)
Aurora Mobile (NASDAQ:JG) is a Chinese marketing technology company that provides mobile data products and solutions, including targeted marketing, push notifications on smartphones and user analytics.
Its products are designed for mobile app developers, so they can integrate Aurora’s products to provide in-app functionality.
Earlier this year, Aurora announced it would add ChatGPT to its JPush notification service in hopes that it would provide human-sounding responses to user queries.
Aurora also launched its first AI bot platform, GPTBots, in Asia-Pacific. The platform allows users without programming experience to build, train and deploy AI bots to handle specific business tasks.
Revenues this year remain down, however. The second quarter saw revenue of $10.1 million, down 4% from a year ago. And while the company made a profit of $6.6 million, that was down 11% from last year.
The market is clearly expressing disinterest in Aurora’s product. JG stock is down 86% this year and gets an “F” rating in the Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
