The discussion around artificial intelligence (AI) has taken a dark turn. In recent days, a number of well-known technology leaders, including Tesla (NASDAQ:TSLA) CEO Elon Musk and Apple (NASDAQ:AAPL) co-founder Steve Wozniak, signed an open letter calling for a pause in the development of generative AI that they say poses high-level risks to humans and society. The strongly worded letter stated: “Contemporary AI systems are now becoming human-competitive at general tasks, and we must ask ourselves: Should we let machines flood our information channels with propaganda and untruth?”
The letter, which received considerable media coverage, came on the heels of a research report from investment bank Goldman Sachs that said generative AI could lead to the loss of 300 million jobs globally and replace 7% of the American workforce in the next decade. As the initial hype surrounding chatbots subsides, people are starting to ask hard questions about the implications of AI technology. What’s also becoming clear is that many of the AI stocks that have flourished in recent months have also been over-hyped and are unlikely to live up to the high expectations of investors. As the conversation around AI shifts into a new gear, we look at three of the most over-hyped AI stocks to sell in April.
AI Stocks to Sell: Meta Platforms (META)
Meta Platforms (NASDAQ:META) stock is closing out the year’s first quarter, having risen 68% over the last three months. The huge gains result from a few factors, including several austerity measures announced by the company. Investors also seem to like that Meta Platforms has pivoted away from its development of the metaverse. However, a good chunk of the price increase in META stock has also been because the company has been hyping its AI offerings. During the company’s most recent earnings call, Meta CEO Mark Zuckerberg talked about AI almost exclusively and noted several journalists in attendance.
In a Facebook post from late February this year, Zuckerberg said that Meta is creating a new product group to help “turbocharge” the company’s AI tools. Specifically, Meta Platforms is looking to develop new AI features such as Instagram filters and new chat tools for its WhatsApp and Messenger platforms. The company also integrates AI into its online advertisements. However, these efforts look small compared to the chatbots launched by OpenAI and Alphabet (NASDAQ:GOOG, GOOGL). Also, Meta launched its own AI-powered chatbot last year called “BlenderBot 3,” but was forced to shelve it after it made mistakes and used offensive language.
With META stock having run up nearly 70% since January, investors must ask: How much further does the share price have to run?
Arguably the most over-hyped AI stock of recent months has been C3.ai (NYSE:AI). So far in 2023, AI stock is up an astounding 192%, making it one of the year’s top stocks. Yet, the run-up and hype surrounding C3.ai appear to be overdone, judging by the short interest in the stock. Since January, the amount of short interest in AI stock has risen more than 200%, indicating that traders are betting on the share price to go down A quarter (25%) of the company’s stock is now sold short, meaning professionals on Wall Street anticipate a sharp correction in the share price.
If this weren’t enough, online message boards like WallStreetBets are full of chatter about a short squeeze brewing for AI stock. If that happens, the shares could skyrocket. But the stock could also crash, hurting retail investors. Investors should be careful because of the growing short interest in C3.ai and its potential to be treated like a meme stock. The hype surrounding C3.ai is getting out of control, and bad things could happen. Also, C3.ai remains a comparatively small player in the AI space, with fewer than 1,000 employees and annual revenues of less than $200 million. If anything, the company has benefitted from its ticker symbol being, “AI.”
To be sure, some of the wind has been taken out of Chinese tech giant Baidu’s (NASDAQ:BIDU) sails after the disastrous public unveiling of its much-hyped AI chatbot called “Ernie Bot.” However, China’s premier AI company continues to ride the global hype surrounding generative AI and large language learning models. Year-to-date, BIDU stock is up 30%. That gain can be attributed to expectations around the company’s AI offerings. While the Ernie Bot presentation caused Baidu’s share price to immediately fall 10%, it has largely recovered from that decline as investors remain hopeful about the company’s future AI offerings.
Baidu is doing its best to put the Ernie Bot debacle behind it, announcing that the chatbot will now be trialed by an initial group of users who are given special invitation codes and that a select group of companies will be invited to embed the chatbot into their products via Baidu’s cloud platform. However, it remains to be seen precisely how Baidu’s Ernie Bot will perform once fully operational and what it will be used for by people and organizations. So far, all the company has provided is a pre-recorded video of Ernie Bot answering some math questions and producing a rudimentary drawing. The hype certainly doesn’t seem justified, making it one of the top AI stocks to sell.
On the date of publication, Joel Baglole held long positions in AAPL and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.