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AI Stocks · Investment Strategy · Technology · Valuation
Pierre Raymond's analysis for European Business Review identifies four AI stocks as undervalued and four as overvalued, cautioning investors about the current euphoria and FOMO driving unsustainable valuations in the AI sector following ChatGPT's launch.
The article highlights a "hype cycle" in AI, where companies with even a tangential connection to AI experience boosted shares. It emphasizes the difficulty of valuation for often unprofitable companies during this phase, stressing that due diligence is crucial for weeding out companies capitalizing solely on hype.
Undervalued stocks include Palantir Technologies, showing robust revenue growth approaching $2 billion in fiscal 2022 with narrowing net losses of $255.5 million, and Microsoft, with its majority ownership of OpenAI, trading at a P/E of 36.6. Marvell Technology projects its AI revenue will double for the coming year, trading at a P/S of 9.4, while Intel, with $63 billion in 2022 revenue, trades at a P/S of 2.5.
Overvalued stocks include NVIDIA, a trillion-dollar company, trading at a P/E of 217.7, and C3.ai, with a market cap of nearly $5 billion despite $268.8 million in net losses and a P/S of 18.4. Advanced Micro Devices (AMD) has a P/E of 523.6 and a market cap of $203 billion, with shares doubling year to date.
Snowflake trades at a P/S of 25, generated $2.1 billion in revenue for fiscal 2023, but incurred losses of almost $800 million. Investing in AI is risky due to its nascent stage; due diligence is crucial to avoid buying high and selling low.
