Protect Your Retirement: Three AI Stocks to Avoid
The AI revolution is in full swing, but not all AI companies are created equal. Here are three AI stocks that investors might want to steer clear of, especially if they're planning for retirement.
- SoundHound AI: A Small Hound in a Big Pound
SoundHound AI (SOUN) has had a rough year, with its share price plummeting after Nvidia sold its stake. The company's third-quarter earnings report showed a record net loss of $109.3 million, despite record revenue of $42 million. While SoundHound is growing revenue from its voice-enabled AI chat platform, its 2024 acquisition of Amelia, an agentic AI software company, presents expansion opportunities. However, the technology is not new, and competition is fierce. SoundHound's stock is trading at about 30 times trailing sales, making it way more expensive than most other tech companies.
- BigBear.ai: The AI Growth Stock That Isn't Growing
BigBear.ai (BBAI) offers AI products like data analytics and facial recognition software, primarily to the U.S. military and government agencies. However, its revenue has been declining for three years, while other AI companies have achieved record sales. BigBear.ai's gross margin is among the worst in the industry, at just 22.4% in Q3. This means the company is making less money per sale, and there are hardly any metrics moving in the right direction. Yet, it's still trading at a premium valuation of 14 times trailing sales.
- Pony.ai: A New Arrival with Uncertain Prospects
Pony.ai (PONY) had its initial public offering (IPO) less than a year ago and focuses on AI-powered autonomous vehicles. The company reported 72% year-over-year revenue growth in Q3, driven by its robotaxi services and licensing revenue. However, its first comprehensive quarterly SEC earnings report for Q4 2024 showed a sharp year-over-year revenue drop. Given the company's young age and the critical importance of Q4 revenue, investors should wait to see whether Q4 revenue goes up or down before considering an investment.
In summary, while the AI sector is exciting, these three stocks present significant risks for retirement savings. Investors should carefully consider their investment strategies and avoid overpriced, unproven, or declining companies.
