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AI Mania: 3 Rare Pure Plays to Monitor

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The Emergence of AI

Artificial Intelligence (AI - Free Report) has garnered widespread attention from users and investors after the viral rollout of the AI-powered chatbot ChatGPT. To give you an idea of how successful the launch has been, ChatGPT is now the fastest consumer app to reach 100 million active users – taking just two months to reach the milestone. As a result of the meteoric rise to popularity, privately held ChatGPT creator OpenAI has secured more than $10 billion in investments from Microsoft (MSFT - Free Report) .

Companies like Amazon (AMZN - Free Report) have been using AI under the hood for years. For example, Amazon leverages AI on its back end to increase sales on its e-commerce platform (if you add a table to your shopping cart, it will suggest chairs). Microsoft is not the only publicly traded company making bold bets in the AI space to compensate. The emergence of ChatGPT has exhibited not only the power and versatility of AI technology but also the threat to existing tech juggernauts. AI technology may not only disrupt technology, but it is also likely to impact investments. The recent awakening is causing tech giants such as Alphabet (GOOGL - Free Report) to take notice but and action. Friday, Alphabet announced an investment of $300 million in AI start-up Anthropic. Meanwhile, International Business Machines (IBM - Free Report) has been on a spending spree of its own, attempting to bolster the firm’s AI presence by acquiring a handful of small AI-centric firms in recent months.   

Can AI Move the Needle?

Though the new investments by the dominant tech players are significant from a dollar perspective, they are unlikely to move the needle in the short term for a company like Alphabet, which has a market cap of over $1 trillion, or Microsoft, which has a market cap of nearly $2 trillion.

Because the technological advances in the space are still relatively new and many companies are privately held and small in size, investors are left with little in the way of AI stocks to choose from. Fortunately, there are three public companies that recently IPOed and are pure plays on emerging technology, including:

1. Inc (AI - Free Report) : is an enterprise AI software provider that aims to develop, deploy, and operate large-scale AI, predictive analytics, and IoT applications. Since going public, the stock’s performance has been dismal. AI traded as high as $180 in its third week of trading in 2020, only to crash to as low as $10 last year.

Zacks Investment Research
Image Source: Zacks Investment Research

However, the recent AI hype, rising revenue, and a narrower than anticipated loss in the company’s recent earnings report have driven shares higher and changed the character of the stock. Over the past three months, the stock is up by more than 100% on massive volume. Surprisingly, more shares traded hands last week than the week of the IPO.

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Image Source: Zacks Investment Research

Though C3 has yet to turn a profit as a public company, its revenue has been growing for several quarters, and the company has onboarded some impressive clients including, the U.S. Airforce, utility giant Consolidated Edison Inc (ED - Free Report) , and Koch Industries (the second largest privately held company in the United States).

At present, avoid shares of C3 because they are extended in price and hold a lowly Zacks Ranking of 4. Nevertheless, investors should keep an eye on the stock over the coming months. C3 is one of the few AI pure plays available to public investors, and the recent buying pressure in shares suggests that investors are anticipating a turnaround.

2.   Veritone Inc (VERI - Free Report) : Veritone is a firm that runs a proprietary cloud-based digital asset management platform focused on leveraging AI technology and its benefits to clients in the media, politics, legal, and law enforcement industries. Veritone’s niche in digital asset management has attracted some noteworthy clients, such as the Los Angeles Chargers football organization. The Chargers have more than 60 years of video content stored. Organizing such a large amount of content can be a headache and requires several employees and a lot of money. That is until they took advantage of Veritone’s platform. Veritone’s solution organizes, stores, and makes the content searchable, like Google.

Like C3, Veritone has taken investors on a rollercoaster ride since coming public in 2017. With that said, the stock has been on the rebound and has garnered the attention of investors in recent weeks.

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Image Source: Zacks Investment Research

Veritone has only produced one profitable quarter since going public. That said, top-line growth has been strong – VERI has consistently achieved mid to high double-digit revenue growth since going public.  

3.   Bigbear AI Holdings (BBAI - Free Report) : is a provider of artificial intelligence, machine learning, cloud-based analytics, and cyber engineering solutions. Through AI, Bigbear aims to provide its clients with a clearer view of their current data, better predictability of future outcomes, and “pathways to navigate changing conditions.” Like Veritone and C3, BBAI gets its revenue from various industries, including government (intelligence analysis), healthcare, and manufacturing. BBAI shares have gone on an impressive run over the past few weeks – rocketing from a low of $0.58 to a high of around $6. However, the company is tiny, unprofitable, and holds a poor Zacks rating of 4.

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Image Source: Zacks Investment Research


For now, the current AI craze loosely echoes “blockchain mania” from a few years ago. During this period, any company with “blockchain” in its name rocketed higher as the speculative juices began to flow on Wall Street. In 2017, Long Island Iced Tea Corp switched its branding to “Long Blockchain Corp” to benefit from the hype. Ultimately current earnings power and future earnings runway began to matter again in the blockchain stocks, and I suspect the same will happen in AI–related stocks. The likely scenario in the stocks mentioned above is that they have benefitted from hype, small floats, and speculation in recent weeks.

Nevertheless, it never hurts to begin researching a novel, innovative industry such as AI. For pure plays, patience is required. Secondary beneficiaries such as Nvidia (NVDA - Free Report) and Advanced Micro Devices (AMD - Free Report) currently have more favorable reward-to-risk profiles.

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