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C3 AI, BBAI, and SOUN stocks outlook in the age of irrational exuberance

By: Invezz stock up on q3 earnings

Nvidia (NASDAQ: NVDA) stock price has triggered a major animal spirit in Wall Street. The shares have jumped to over $800, a big increase since it was trading at less than $50 before the COVID-19 pandemic. It has become a $2 trillion company and the fourth-biggest company in the world after Microsoft, Apple, and Saudi Aramco.

Nvidia leads to surge in AI stocks

The recent performance of Nvidia has triggered a major rally among AI stocks as investors seek to get the next big thing in the industry.

SoundHound AI (SOUN) stock price has surged to $6, its highest point since June 2022. This is a remarkable increase since it was trading below $2 a few days ago. Its market cap has soared to over $1 billion after Nvidia invested in it.

Similarly, heavily shorted stock has jumped to $30, which is still much higher than its 2023 low of $9.98. It has, nonetheless, trailed behind other AI stocks this year since it is up by less than 1% in 2024.

Meanwhile, BigBear AI stock has jumped to $2.9, its highest point since June 2023. It has jumped by more than 16% this year, giving it a market cap of more than $303 million. 

These stocks have done well because of their association with AI, an industry that is expected to continue growing over time.

This trend accelerated after Nvidia’s results showed that its total revenue soared by more than 240% in the last quarter. The CEO also noted that the AI technology was still in its infancy.

Meanwhile, OpenAI, the creator of ChatGPT has attained a $80 billion valuation as its annual revenue is expected to get to $1 billion this year. This growth is happening as individuals and companies turn to AI to solve important challenges.

There is a significant risk

The AI technology is indeed changing most industries. However, the reality is that some of these companies have become separated from reality. Let’s look at Nvidia, a company’s whose valuation now stands at $2 trillion.

Nvidia’s revenue in 2023 stood at $60.9 billion, a big increase from $26 billion a year earlier. Its revenue has grown rapidly since it stood at $10.9 billion in 2020. 

The company has also become highly profitable as its net income rose to almost $30 billion. Analysts expect that Nvidia’s revenue will be $109.7 billion this year and $130 billion in 2026. 

Let’s assume that the company’s revenue will get to $200 billion by 2030, it means that it is trading at 10x estimated sales. Nvidia’s forward PE ratio stands at 32x, which is still high.

The other companies are not doing well either. For example. revenue growth stood at just 5.61% in the last quarter and its forward figure is at 13%. BigBear AI’s TTM and forward revenue growth was 4.61% and 6.07%, respectively.

SoundHound is the only one of these companies that is growing at a fast pace. Its revenue rose by over 42%. It also has a growing market share as companies embrace AI more.

The growth of AI brings memories of Alan Greenspan at the height of the dot com bubble. In it, he warned of irrational exuberance in the tech industry. A year later, the bubble popped and investors lost billions.

It also brings memories of the EV industry, which has popped up, leading to trillions in paper losses among investors. Most EV stocks like Tesla, Rivian, Lucid Motors, and Fisker have all plummeted as growth slowed.

This is not to say that these AI stocks are about to collapse. In most periods, bubbles take time to form and a pop is usually triggered by something. In the EV industry, the trigger was the recent price cuts by companies like Ford and Tesla.

Therefore, the bubble may continue forming for a while but history suggests that a pullback will happen. Indeed, there are signs that it is already underway. BigBear AI stock is down by 63% from its 2023 high while C3 AI has fallen by 42%.

The post C3 AI, BBAI, and SOUN stocks outlook in the age of irrational exuberance appeared first on Invezz

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