After several months of increasing stock prices, interest in artificial intelligence hit some speed bumps during the Q1 earnings season, and it might be time to think about which AI stocks to sell. There had been a general pullback in market enthusiasm as investors began to accept that the Fed won’t be easing as soon as initially anticipated. However, AI seemed to be particularly affected, as investors appeared to lose some enthusiasm for this high-flying sector. This leads to the query of which AI stocks to sell next.
Traders rushed into the AI trend, hoping to get ahead of expected future gains. However, the full benefits of AI will not be realized in just a few months; it is a growing technology that will likely take decades to fully mature. As such, overexuberance can still lead to pullbacks as traders adopt a more realistic pace of growth. Many AI companies have managed substantial gains over the prior year but failed to meet even higher expectations, resulting in share price declines post-earnings.
Server manufacturer Super Micro Computer (NASDAQ:SMCI) exemplifies this trend. It recently posted earnings growth of over 300%, yet its share price actually fell 7% reporting. The results clearly showed ongoing demand for AI remains strong, with the company guiding similar growth for the next quarter. However, growth that would otherwise be considered exceptional in other sectors disappoints within the AI industry. That begs the question of which AI stocks to sell that could face a similar situation of stock price falls while they are still doing well.
Given the current market dynamics, investors may want to consider the following AI stocks to sell.
Arm Holdings (ARM)
Arm Holdings (NASDAQ:ARM) is one of the AI stocks to sell after gaining massively following its relatively recent initial public offering (IPO) last September. However, much hype for the software and chip architecture developer seems driven by AI speculation rather than company financials, as its bottom line has been aligned with pre-IPO performance. Its stock price more than tripled after going public but has since declined to trade just over 50% above IPO. Such large swings are not going unnoticed, especially considering the spike ensued after reporting a 50% EPS drop over the prior year.
The British company will report its earnings on Wednesday, May 8, an important indicator for the entire market given its affiliation with major AI players Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), and Amazon (NASDAQ:AMZN). Analysts forecast EPS of $0.16 per American Depositary Shares, lower than last year’s $0.29 reported for the last quarter of 2023.
Airship AI Holdings (AISP)
As the adage goes, what goes up must come down. Airship AI Holdings (NASDAQ:AISP), a company that provides AI solutions for surveillance platforms, has seen its stock price increase nearly 300% so far this year. However, much of the gains came after a strong earnings report for last year, where the company turned into profitability after reporting a profit of $0.80 per share compared to a loss of -$0.04 in the prior year.
Nonetheless, it did not come in the form of cash, as revenue decreased over the same period, making a good addition to a list of AI stocks to sell. Rather, it stemmed from an improved valuation following several large contracts the company received from the U.S. government.
Unless Airship AI can repeat its stellar performance and start converting orders into actual payments and cash available for distribution to shareholders, investors looking for AI stocks to sell may end up disappointed by poor earnings and exit or short-sell the stock. As such, sustained growth will be key to justifying the current valuation.
SoundHound AI (SOUN)
Soundhound AI (NASDAQ:SOUN) is the third out of the three AI stocks to sell on this list. The company provides AI solutions for voiceovers and has a sizable addressable market as companies look to automate interaction through natural voice bots. Potential applications include drive-through ordering and recent applications in healthcare services. However, entering new markets can take time, and investors seeking immediate returns may grow disappointed even if long-term shareholders remain satisfied. This could result in a short-term pullback for the company’s stock price when it reports earnings on Thursday, May 9.
Analyst consensus estimates see earnings increasing 25% year-over-year (YOY) but remaining at a loss of -$0.09 per share, alongside revenue growth of 51% to $10.1 million. While praiseworthy for many companies, these figures in the AI industry may not justify the stock price doubling since the start of the year. Considering both short-term expectations and long-term potential, SoundHound AI could be among the top AI stocks to sell.
On the date of publication, Stavros Tousios 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.