The 3 Worst AI Stocks to Buy as ChatGPT Loses Its Edge

Stocks to sell

ChatGPT and the disruption of artificial intelligence have been key talking points for investors. The chatbot has become ubiquitous within a few months of its release. Accordingly, many believe ChatGPT and its peers to be the next frontier in the ever-evolving tech sphere. However, in all the enthusiasm surrounding the technology, most investors are turning a blind eye to its laundry list of flaws. Therefore, it’s important to consider the worst AI stocks to be avoided right now.

Contrary to what many would believe, the viral chatbot is far from perfect. It seldom generates responses that are robotic, repetitive, and downright false. Take it from yours truly; a couple of days ago, I asked ChatGPT who the CEO of Tesla was, and it replied Sundar Pichai! Users across the globe have reported similar “hallucinations” in their experiences with the chatbot.

Moreover, who can forget Google’s promotional video showing how Bard, its patented chatbot, hallucinated. This unfortunate event resulted in the company’s valuation shedding more than $100 billion in value in short order.

With that said, these are three AI stocks I’ve got in my sell bucket right now.

RSKD Riskified $5.62
LMND Lemonade $13.12
VERI Veritone $5.04

Riskified (RSKD)

Source: Blue Andy / Shutterstock.com

Riskified (NYSE:RSKD) is a small-cap Israeli AI company that aims to deliver frictionless e-commerce experiences to its merchants. Its risk management platform uses AI models to analyze large datasets, and machine learning algorithms to identify anomalies that indicate fraud. According to Signifyd, one of Riskified’s peers, total fraud in the e-commerce sector will reach a whopping $206.8 billion this year alone.

The company has an excellent track record of growing its top line, but continues to burn a hole through its pockets. Its EBITDA margin over a trailing twelve-month period is firmly in the red, at negative 41.6%. Moving forward, the company expects its EBITDA loss to range between $27 million and $22 million in 2023 on the back of a challenging macro-environment. Moreover, According to UBS (NYSE:UBS), e-commerce sales are expected to slow between 0.5% and 0.3% over the next couple of years.

Lemonade (LMND)

Source: Stephanie L Sanchez / Shutterstock.com

Lemonade (NYSE:LMND) was once a hot IPO, widely believed to be a key disruptor in the insurance industry. The company’s unique AI-based underwriting systems is the key for Lemonade. Thus far, the company has quickly gained a healthy following, boasting stellar growth rates and client additions.

However, these growth rates have slowed dramatically. Additionally, the company is bleeding tons of cash, posting an adjusted EBITDA loss of $225 million last year.

The slowdown in Lemonade’s overall business is evidenced by the deceleration in its core in-force premiums metric this year. It expects to exit 2023 with $700 million in premiums, representing just 12% growth on a year-over-year basis. Lemonade generated a 116% increase in premiums last year, in comparison.

Furthermore, the company’s EBITDA loss is likely to come in around $242 million, with stock-based compensation at $60 million. Expect LMND stock to continue trending lower, as the company continues to ramp up the losses.

Veritone (VERI)

Source: shutterstock.com/Den Rise

Veritone (NASDAQ:VERI) is a leading software business that provides an array of AI-powered solutions for media, advertising, the government, and other industries. Its core technology is its aiWare platform, which makes effective use of AI and machine learning algorithms to analyze and extract audio/visual data.

Veritone’s organic top-line growth has slowed over the past few years. Most of the expansion in its top-line is driven by acquisitions, with a strong dependence on Amazon (NASDAQ:AMZN) for sales. In its most recent quarter, the firm posted a 20% drop in revenue growth, mainly due to a substantial drop in sales from Amazon. The tech giant like its peers is looking to curb costs in the current macro environment.

As we advance, cost-cutting may be the only reason for investors to be optimistic over the company. The company recently identified $12-$15 million in annual savings, but new acquisitions will continue to pressure its dwindling bottom-line.

On the date of publication, Muslim Farooque 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.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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