Artificial intelligence continues to be a major driver of the stock market. Expectations are that AI will eventually touch every aspect of our lives, opening up a huge new area of the tech sector. Bloomberg Intelligence estimates that AI will become a $1.3 trillion market by 2032. Many forecasts put the market even higher in less than 10 years. The explosive growth has made AI stocks red-hot and in demand among investors.
But caution is needed. Not every company and stock associated with AI is worth an investment of capital. Already, winners and losers are emerging in the AI space. Companies such as Microsoft (NASDAQ:MSFT) are pulling ahead while others like C3.ai (NYSE:AI) are being left in the dust. The trick for investors is to separate the proverbial wheat from the chafe when it comes to AI stocks and the industry’s future.
Here is a stock market crash warning: Don’t get caught holding these three AI stocks.
Adobe (ADBE)
Software company Adobe (NASDAQ:ADBE) is already a bad stock to own. In a market crash it could be downright awful. ADBE stock plunged 12% after the company’s latest financial results were issued in March. While the company behind popular products such as Photoshop and Illustrator managed to beat expectations on the top and bottom lines, its forward guidance disappointed analysts and investors. Through four months of the year, Adobe’s stock is down by 16%.
Adobe is doing its best to add AI technologies to its suite of software products. It recently unveiled an AI assistant for its Reader and Acrobat apps. However, somewhat ironically, it appears that AI is posing an existential threat to the company. ADBE stock started to sell off last year when privately held OpenAI introduced “Sora,” an AI platform that can generate videos based on written descriptions. Some analysts feel that it is only a matter of time before AI replaces Adobe’s suite of creative software products.
Adobe is now looking to partner with OpenAI and add that company’s technology to its software. Time will tell if success is achieved. In the meantime, ADBE stock continues to slide lower.
IBM (IBM)
International Business Machines Corp. (NYSE:IBM) is also doing its best to capitalize on the AI craze, recently announcing plans to spend $1 billion expanding its semiconductor packaging and testing plant up north in Canada. During this year’s first quarter, IBM provided its army of 160,000 consultants with AI assistants to help boost their productivity. Yet despite its efforts, the AI rollout can’t mask the many problems at the legacy technology company.
IBM’s stock recently fell 10% after it announced mixed financial results and announced that it is acquiring cloud software maker HashiCorp (NASDAQ:HCP) for $6.4 billion in a deal that’s expected to boost its cloud-computing services. Analysts seem skeptical of the deal and didn’t care for IBM’s earnings. While the technology company beat on its Q1 earnings, it missed on revenue. It was IBM’s third revenue miss in the last five quarters. The stock of IBM is down 13% in the past month, lowering its year-to-date gain to only 2%.
Intel (INTC)
In early April, Intel (NASDAQ:INTC) unveiled a new AI microchip called the “Gaudi 3” that the company says can be used to train and deploy big AI models and chatbots. Intel claims that its new AI chip is over twice as power-efficient and one-and-a-half times faster than Nvidia’s (NASDAQ:NVDA) competing H100 microchip that is widely used with AI. Intel said that the new Gaudi 3 chips would be available to customers in the third quarter of this year, though it didn’t provide a price for the new chip.
Taking share from Nvidia in the AI chip market will be difficult for Intel. Nvidia currently holds an estimated 75% to 80% share of the AI chip market with its graphics processors, known as GPUs, that have become the standard for running AI applications and models. In March of this year, Nvidia revealed new B100 and B200 GPUs, which are the successors to its smash hit H100 chip and are even more powerful. Intel is also struggling with its transformation into a microchip and semiconductor foundry business.
Since the start of April, INTC stock has fallen more than 30%. Over five years, the share price is down 41%.
On the date of publication, Joel Baglole held long positions in NVDA and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
