Over the past year, stocks with interest in the artificial intelligence (AI) space have seen significant returns as investors continue to bet on the technology.
For instance, chipmaker Nvidia (NASDAQ: NVDA) and American software giant Palantir (NASDAQ: PLTR) are key leaders in this sector, helping investors register massive profits.
Although the outlook on AI is widely positive, not all equities in the space are poised for success, as several headwinds hamper them.
Picks for you
To this end, Finbold has identified the following two AI stocks that investors should avoid for now.
C3.ai (NYSE: AI)
Enterprise AI software firm C3.ai (NYSE: AI) has faced notable challenges in sustaining growth despite its early promise of leading the sector.
Generally, the Redwood City-based firm is navigating an environment of slowed growth and profitability issues. At the same time, C3.ai is struggling with high operational costs amid slowed adoption of its AI products.
While it has secured some notable partnerships with entities such as Microsoft (NASDAQ: MSFT), its financial performance remains inconsistent as it attempts to catch up with competitors such as Palantir.
Unlike Palantir, C3.ai remains unprofitable. For its fiscal 2025, the company targets an adjusted operating loss of $105 million to $135 million.
Another concerning aspect regarding AI stock is the notable insider selling. For instance, CEO Thomas Siebel sold shares worth $21.47 million on February 11 and 12. Typically, insiders selling may signal a lack of confidence in the company in the short term.
From Wall Street, in early December 2024, Bank of America analyst Bradley Sills reaffirmed a ‘Sell’ rating on the stock, citing concerns over its business performance.
This outlook emerged after C3.ai reported Q2 revenue growth of 29% year-over-year, with most of the growth coming from Prioritized Engineering Services rather than core subscriptions, which increased just 22%. This signals a slow conversion of pilot deals into long-term growth.
Meanwhile, a consensus of 10 Wall Street analysts foresees upside potential for AI stock over the next 12 months. According to TipRanks, the experts have set an average price target of $37.22, an upside of almost 18%. The highest price target is $55, while the lowest is $24.
Interestingly, most analysts remain cautious, with four recommending ‘Sell’ and an equal number recommending ‘Hold.’
At the close of the last trading session, AI was valued at $31.56, down over 4% for the day. Year to date, the stock has plunged nearly 9%.
Despite this bearish sentiment, C3.ai still has a chance to grow, especially as it works to turn things around and become profitable.
SoundHound AI (NASDAQ: SOUN)
SoundHound AI (NASDAQ: SOUN), known for its voice AI and sound recognition technology, has had a disastrous start to 2025, plunging by almost 50%. This decline comes despite a stellar performance in the past year when it rallied nearly 200%.
The firm’s main challenge is turning its technology into a sustainable business. While it has made progress with partnerships and licensing deals, its path to profitability remains uncertain, as highlighted by the later quarter earnings report.
In the September 30, 2024 quarter, SoundHound AI’s sales increased by 89% to $25.1 million. However, its operating loss more than doubled to $33.8 million, compared to $14.5 million a year earlier.
In the first nine months of 2024, SoundHound burned through $75.8 million in operating activities, leaving it with just $135.6 million in cash, a precarious financial position.
On the other hand, two Wall Street analysts at TipRanks project that SoundHound AI (NASDAQ: SOUN) could surge 119% to an average price target of $24, with estimates ranging from $22.00 to $26.
It is worth noting that the recent downturn in SOUN was triggered by Nvidia’s decision to entirely exit its position in the stock.
Investors may have been spooked by this move, considering that Nvidia’s investment in the firm previously offered credibility and confidence. As a result, the exit potentially raises questions about SoundHound’s ability to sustain future growth.
By press time, SOUN was trading at $10.96, plunging over 28%. Year to date, the stock has recorded losses of 45%.
While C3.ai and SoundHound AI face hurdles in profitability and investor confidence, their potential isn’t lost. By strengthening their fundamentals and driving sustainable growth, they can position themselves for a rebound as the AI sector continues to thrive.
Featured image via Shutterstock
