3 Overhyped AI Stocks the Smart Money Is Fleeing Fast

Stocks to sell

Whether or not you’re bullish on artificial intelligence (AI), it’s had an undeniable impact upon marketing and branding strategies of renowned tech companies.

AI is forcing tech into the machine learning (ML) era. Yet, not every tech company is truly a contributor to the AI revolution. These companies result in overvalued AI stocks and can be dangerous to the long-term success and stability of an investment portfolio.

So which stocks have received undue attention and valuation, as a result of integrating AI into their brand image? By looking at before and after valuations based on AI implementation over time, we get a picture. Moreover, we’ll take a look at important metrics like price-to-earnings (P/E) ratios and price-to-book (P/B) ratios.

Let’s examine three overvalued AI stocks to sell or avoid before a serious correction.

Adobe (ADBE)

Website of Adobe (ADBE) Firefly seen in an iPhone. In Mar 2023 Adobe announced the beta launch of its new generative AI model Firefly.

Source: Koshiro K / Shutterstock.com

With OpenAI’s new DALL-E and SORA models, Adobe (NASDAQ:ADBE) faces several future challenges from AI. Also, the company is confronted with the risk of overvaluation due to its own AI experiments.

First, the rapid pace of AI software development could make many Adobe video and photo editing products obsolete. Also, it could severely cut into the company’s customer base. In fact, many potential stock footage customers may be drawn away by AI-generated photos and videos.

Indeed, the company has tried to use AI products to its own advantage, with features like Generative Fill for its Adobe Firefly software. These kinds of products have seen the company’s value surge in the last month. Yet, time will tell if they are truly the value drivers ADBE claims them to be. For now, its P/E ratio of 51.67x seems somewhat overpriced as the stock nears the $600 mark.

Arista Networks (ANET)

Image of Arista Networks (ANET) logo on the side of a building

Source: Sundry Photography / Shutterstock.com

Up a stunning 51% over the last six months, investors might want to consider taking profits on Arista Networks (NYSE:ANET). At February’s end, I recommended ANET stock as a strong buy. That was based on the prediction that AI-related services would take it to the next level. Had you bought back then, you’d be up a solid 36% today. That is generous, considering that the stocks I recommend are intended to be long-term plays.

Looking at ANET stock five months later, AI hype may have carried it too far too fast. Its 51.61x price-to-earnings ratio means it is starting to get expensive. Depending on the broader economy and the data center industry’s direction, ANET could see a reduction in price on the horizon.

Therefore, investors should take their profits now. Although the stock may continue to grow, it is likely to crash along with a broader market correction which is ultimately overdue.

C3.ai (AI)

C3.ai (AI) logo on a smartphone with computer screen showing graph in background, symbolizing AI stock

Source: shutterstock.com/Below the Sky

Despite being up around 6% in the last six months, C3.ai (NYSE:AI) is almost certainly among the most overvalued AI stocks right now.

That’s because the company has no profits with which to justify its current price. It is a product of investor speculation. Moreover, it’s hard to gauge the amount of current demand for enterprise-level AI software.

Furthermore, the company’s pricing has been relatively cyclical as it rose and fell three times in the last 12 months between the $40 to $20 range. Now, its consensus ratings put it on hold. Yet, I would recommend investors exit the position as C3.ai’s major advantage is still its AI branding.

Should the broader market begin to feel that AI has been overhyped over the last 12 months, then we could see a serious reduction in the share price for AI stock.

On the date of publication, Viktor Zarev 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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Viktor Zarev is a scientist, researcher, and writer specializing in explaining the complex world of technology stocks through dedication to accuracy and understanding.

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