Artificial intelligence (AI) is no longer just a buzzword, with its prominence in the tech landscape surging like never before this year. This next-level technology effectively opens doors to an array of applications for consumers, businesses and other entities. Moreover, its application in investing is often understated, so investors must consider the stocks AI warns against.
To be fair, it’s best to take these with a grain of salt for those looking at the AI stock recommendations to avoid. Like any revolutionary tech, it’s not without its shortcomings, and AI is no different. That said, I asked Google’s AI chatbot Bard about three stocks to avoid now.
My prompt was: “Hey Bard, I am writing an article for InvestorPlace titled ‘3 Stocks That AI Does NOT Think You Should Buy,’ what are some of your recommendations?”
Here’s what it picked:
Stocks AI Warns Against: ContextLogic (WISH)
According to Bard: “ContextLogic (NASDAQ:WISH) is a discount e-commerce platform that has struggled in recent years. The company has lost money for several quarters and its revenue growth has slowed. The stock is also trading at a very high valuation.”
WISH stock was once the darling of the 2020/2021 stock market bull run, dazzling many with its meme stock status. It soared in popularity during the height of the retail trading frenzy in 2021, capturing the imagination of novice investors on Twitter and Reddit. However, as inflation reared its head in 2022, WISH, its peers and other unprofitable ventures experienced a harsh fall from grace.
Growth rates have stalled for the business, with forward estimates pointing to a negative 51% revenue growth ahead. In the past seven quarters, its revenue growth rates have been firmly in the negative, further weighing down its profitability positioning. With its cash flows in the red and the looming threat of capital raising measures, the outlook for the firm is remarkably bleak. While customer retention showed some silver linings in the past few quarters, a decline in monthly active users and questionable management decisions suggest that WISH might be a ship that’s sailed.
According to Bard: “Peloton (NASDAQ:PTON) is a fitness equipment company that was a pandemic darling, but its stock has come crashing down in recent months. Supply chain disruptions and a decline in product demand have hurt the company. The stock is also trading at a very high valuation”.
During the pandemic, Peloton Interactive was hailed as the beacon in the workout-at-home era. As homes transformed into gyms, the company’s pricey bikes and treadmills became fitness essentials. However, as the world embraced and entered the post-pandemic era, fitness aficionados returned to public gyms, and Peloton’s market began to wane.
Peloton stock is down more than 48% in the past six months and over 95% lower than its highs achieved during the pandemic. It finds itself at a crossroads, shifting its sails from a high-end equipment manufacturer to an exercise streaming platform.
More importantly, its sales have dropped by double-digit margins over the past several quarters, and trialing twelve-month net losses have soared by 3,078% compared to 2020. Hence, with such figures in the backdrop, the road ahead appears daunting for the fitness player.
According to Bard: “Zillow (NASDAQ:Z,NASDAQ:ZG) is a real estate technology company that has been struggling to make money. The company has been forced to write down the value of its home-buying business, and its stock has lost over half of its value in the past year”.
The tech-centric real estate platform Zillow may seem like a promising pick at a glance. However, a deeper dive into potential economic downturns indicates massive long-term concerns. During economic slowdowns, companies streamline, often resulting in large-scale layoffs. Consequently, the unemployed typically cannot secure mortgages, directly impacting Zillow’s potential customer base.
Presently, Zillow’s financial metrics also leave much to be desired. According to GuruFocus, it has a GF value score of just 3 on 10, in line with its profitability and sales rank. Growth rates are in the negative and have slowed down substantially in the past several quarters. Moreover, its financial positioning is worrying, with its cash-to-debt ratio of 1.76, worse than most businesses in its niche.
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.