Nvidia (NASDAQ: NVDA) emerged as a top-performing tech stock in the last decade, riding the wave of the expanding artificial intelligence (AI) market. The company, known for gaming GPUs, ventured into the data center arena with improved GPUs to handle AI tasks more efficiently.
This move catalyzed Nvidia’s growth as big corporations upgraded their AI capabilities. As a result, its revenue saw a substantial compound annual growth rate (CAGR) of 31% from fiscal 2014 to fiscal 2024, with a staggering stock surge of 16,570% in the past decade. Analysts predict a continued revenue growth CAGR of 35% from fiscal 2024 to fiscal 2027.
Such growth rates position Nvidia as a key player in the AI market expansion. However, not all tech companies focusing on AI are guaranteed long-term success like Nvidia. Today, we’ll look at two AI stocks that appear weaker and could struggle even as the market grows: AI software provider C3.ai (NYSE: AI) and automotive chip company Mobileye (NASDAQ: MBLY).
C3.ai confronts significant challenges
C3.ai creates AI algorithms that integrate with a company’s existing software to automate and expedite certain tasks. Despite its promising strategy, it faces fierce competition and relies on a joint venture with energy giant Baker Hughes for 30% of its revenue. This partnership is scheduled to end in fiscal 2025, raising uncertainty about its renewal.
In fiscal 2023, C3.ai’s revenue increased by only 6%, a dramatic slowdown from its 38% growth in fiscal 2022 and below its initial growth target of 22% to 25%. The company attributed this deceleration to macroeconomic challenges and a shift from subscription-based models to usage-based fees. C3.ai anticipates revenue growth of 11% to 20% in fiscal 2024, but its history of overpromising and underdelivering casts doubt on this optimistic forecast.
Despite abandoning the goal of achieving profitability by the end of fiscal 2024 to focus on generative AI algorithms, C3.ai’s stock remains pricey at 10 times sales for this year. Its stock insiders have sold more shares than bought over the last 12 months, indicating a lack of confidence in its prospects.
Mobileye grapples with a sharp cyclical downturn
Mobileye, spun off from Intel in a 2022 IPO, leads the market in advanced driver assistance systems (ADAS) using its own EyeQ computer vision chips, manufactured by STMicroelectronics (NYSE: STM). Despite being a prominent player in the connected and autonomous vehicle segments, Mobileye faces a significant revenue decline.
While revenue rose by 22% in 2022 and 11% in 2023, Mobileye predicts a revenue drop of 6% to 12% in 2024. The company’s clients stocked excessive EyeQ chips in 2021 and 2022 to combat supply chain disruptions, leading to a surplus of 6 to 7 million chips by 2023. Analysts project a 51% plunge in adjusted earnings this year due to excess inventory challenges.
Although Mobileye is expected to rebound from its cyclic downturn in the coming years, its stock currently appears overvalued with a forward earnings multiple of 62. Even after a nearly 40% decline in the past year, caution is advised before investing in this chip stock until signs of recovery emerge.
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Leo Sun does not hold positions in the mentioned stocks. The Motley Fool holds positions in and recommends Nvidia, C3.ai, Intel, and Mobileye Global, and suggests options for Intel: long January 2023 $57.50 calls, long January 2025 $45 calls, and short February 2024 $47 calls. The Motley Fool adheres to a disclosure policy.
Nvidia Is Still Hot, but These 2 Artificial Intelligence (AI) Stocks Could Fizzle Out – Original article by The Motley Fool
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