In this article, we will look at the 10 Worst AI Stocks to Buy According to Reddit.
Are AI Stocks on the Rise Again?
In the lead-up to the September rate cut decision, analysts had expressed a variety of opinions regarding the 50 basis-point cut, with some supporting and others opposing it. Some of them suggested that lower interest rates could create opportunities in small and mid-cap stocks, which may benefit from a more favorable borrowing environment.
Officials at the Fed maintained the opinion that this timely monetary policy adjustment was purely based on economic data and wasn’t politically motivated. Additionally, it isn’t just influenced by recent employment data but rather as a part of a broader strategy established earlier in July, aimed at managing inflation while maintaining low unemployment rates.
Lower interest rates are now encouraging investors to reconsider their AI stock holdings or diversify their portfolios with a greater focus on AI investments. Cory Johnson, Chief Market Strategist at Futurum Group, discussed how the Fed’s rate cuts have created a positive outlook for tech spending and venture capital investment, particularly in the AI and semiconductor sectors. His opinion was covered in another one of our articles, 10 Worst Artificial Intelligence (AI) Stocks To Buy According to Financial Media. Here’s an excerpt from it:
“Johnson pointed out that there had been a reset in tech stocks when the Fed was not pivoting as quickly as investors would have liked. However, with the recent cut, there seems to be a renewed coupling between tech stocks and market sentiment. Even a reduction of 50 basis points can ease borrowing and spending, leading to increased M&A activity. He said this trend will likely result in heightened investments in technology, particularly AI.
He also highlighted how lower interest rates could accelerate the shift towards AI computing by making capital more accessible for companies looking to invest in this area. Johnson mentioned that as rates decrease, expected returns on investments look more attractive, especially in growth sectors like tech. This shift could lead to greater confidence among companies to invest in AI.”
Johnson’s insights reflect an optimistic view of tech investments in light of the Fed’s actions, suggesting that companies are exploring new opportunities within AI. At the same time, markets are seeing AI and EVs creating a new wave of power demand growth.
Michael Khouw, OpenInterest.PRO Chief Strategist, discussed that the stock market experienced a broadly lower performance recently, with the NASDAQ Composite suffering the most significant decline, down 0.5%. The S&P 500 also saw a decrease, giving up 24 points to close below 5,700, while the Dow Jones Industrial Average was down by 60 points at the time of reporting. Despite this overall downturn, the utility sector outperformed the S&P 500 year-to-date and may become even more attractive following recent interest rate cuts and as AI and electrification drive global power demand.
Khouw discussed the current state of utilities and acknowledged that while it may seem daunting to invest in a sector that has seen substantial gains, over 7.5% total return since the beginning of last year, it is still an opportune time to consider utilities as an investment. Historically, utilities have not been perceived as a growth sector, but Khouw emphasized that they are currently trading at about 19 times forward earnings, which is relatively high compared to their usual discount to the market.
He provided historical context regarding electricity demand, noting a significant increase in demand following World War II — a 6.5-fold rise until stagnation began around 2007. He predicts that a new phase of growth in electricity demand is on the horizon, driven primarily by two factors: the rise of electric vehicles (EVs) and the increasing need for data centers fueled by artificial intelligence (AI). He estimates that by 2030, about 50% of vehicles on the road could be electric, significantly impacting electricity consumption. Additionally, expanding data centers to meet AI demands will further elevate electricity needs.
For investors looking to capitalize on this trend in utilities, Khouw suggested considering a major exchange-traded fund (ETF) that tracks utility stocks. He noted that the ETF has performed exceptionally well, gaining over 40% since October, but there are still investment opportunities. For those cautious about entering after such gains, he recommended using options strategies due to the relatively low premiums associated with utility stocks. Specifically, he proposed buying longer-dated call options and potentially selling downside puts as part of a diagonal risk reversal strategy.
This landscape indicates a promising rise in AI stocks, driven by the increasing recognition of AI’s transformative potential across various sectors. As electricity demand surges, fueled by the rise of EVs and the expansion of data centers necessary for AI operations, investors are likely to see significant growth opportunities in AI stocks as well. In that context, we’re here with a list of the 10 worst AI stocks to buy according to Reddit.
Methodology
We sifted through various Reddit threads to compile a list of 15 possible AI stocks with a short interest between 10% and 25%. We then selected 10 stocks with the highest short interest. We have also mentioned the hedge fund sentiment for each stock, as of Q2 2024. The stocks are ranked in descending order of the number of hedge funds that have stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Worst AI Stocks to Buy According to Reddit
10. SoFi Technologies Inc. (NASDAQ:SOFI)
Short % of Shares Outstanding As of August 30: 17.77%
Number of Hedge Fund Holders: 29
SoFi Technologies Inc. (NASDAQ:SOFI) is a financial technology company that operates as a direct bank and supports other financial service providers through its technology platform, using AI to provide a personalized and seamless financial experience. By utilizing AI-powered algorithms, it can analyze individual financial data to offer tailored recommendations.
For the convenience of its 8.8 million users on 158 million platform accounts, SoFi Technologies Inc. (NASDAQ:SOFI) has integrated Galileo’s conversational AI engine into its app. Cyberbank Konecta, the AI assistant, can handle 80% of common inquiries, reducing response times by 65%.
The company’s competitive advantage is that it targets consumers with high credit scores through its products. This means that its customers are generally well-off individuals likely to pay back their loans, removing an element of risk from its business model.
For the full year 2024, the company expects to grow its members by 30%. In Q2 of this year, it added 643,000 new members and made $596.97 million in revenue, up 22.12% year-over-year. Combined, Financial Services and Tech Platform revenue grew 46% year-over-year and made up 45% of total adjusted net revenue. Loan sales were $1.6 billion this quarter
Continuous product innovation and brand-building are fueling significant member and product growth. The tech platform is also well on its way to becoming the go-to platform for financial services, much like AWS is for technology.
SoFi Technologies Inc. (NASDAQ:SOFI) presents a good case for robust revenue growth potential, enhanced profitability from its banking license, undervalued valuation compared to traditional banks, and strong technological capabilities. These factors position it as a promising fintech investment.
Patient Capital Opportunity Equity Strategy stated the following regarding SoFi Technologies, Inc. (NASDAQ:SOFI) in its first quarter 2024 investor letter:
“SoFi Technologies, Inc. (NASDAQ:SOFI) fell in the first quarter despite delivering strong 4Q results and 2024 guidance supported by their non-lending businesses. The company continues to gain share in the digital lending and neo-banking space, consistently growing deposits at $2B a quarter. What differentiates the company is their focus on prime and super-prime customers (average FICO 749). Sofi is early in its life cycle, currently being a small player in a very large total addressable market (TAM). With their strong management team, we believe the company will continue to deliver on their guidance of strong growth and expanding margins.”
9. MicroStrategy Inc. (NASDAQ:MSTR)
Short % of Shares Outstanding As of August 30: 13.70%
Number of Hedge Fund Holders: 26
MicroStrategy Inc. (NASDAQ:MSTR) provides business intelligence, mobile software, and cloud-based services, using AI to transform raw data into actionable insights. Its platform utilizes advanced algorithms to analyze vast datasets, identifying trends, patterns, and anomalies that would be difficult for humans to discern, powered by AI-driven analytics. It’s the world’s largest corporate holder of Bitcoin, owning 226,500 bitcoins, with a total market value of $15 billion as of August 2024.
Although the company was able to increase its total Bitcoin holdings by 5.6% in Q2 2024, this quarter met a revenue decline of 7.44%, recording a value of $111.44 million. This decline is primarily due to its ongoing transition to cloud-based services, which resulted in lower upfront revenues but laid the foundation for stronger, more sustainable cloud recurring revenue in the long run.
Subscription revenue for the second quarter was $24 million, up 21% compared to the same quarter in 2023. This growth was driven by cloud migrations and new customer acquisitions and made up 22% of the total revenue.
MicroStrategy Auto™ is its customizable AI bot that empowers users to access business intelligence insights through simple, natural language queries, eliminating the need for intricate dashboards. This AI bot can be used as a standalone application or integrated into existing third-party applications. Leveraging GenAI, the platform can automatically generate SQL queries, dashboards, and responses to user inquiries.
MicroStrategy Inc.’s (NASDAQ:MSTR) introduction of Auto Express, along with its expanded availability on cloud platforms, highlights its strategic use of AI. In terms of returns, it seems to be second only to NVIDIA. These steps position the company as a leading force in the AI industry.
Artisan Small Cap Fund stated the following regarding MicroStrategy Incorporated (NASDAQ:MSTR) in its Q2 2024 investor letter:
“Regarding MicroStrategy Incorporated (NASDAQ:MSTR), our decision to avoid this company comes down to a lack of conviction in its franchise characteristics. The stock has worked this year due to a rebound in the price of bitcoin. Since 2020, MicroStrategy has been focused on converting its cash and cash equivalent holdings, as well as issuing debt, to fund the purchase of bitcoin, which now makes up most of the company’s value.”
8. Fastly Inc. (NYSE:FSLY)
Short % of Shares Outstanding As of August 30: 10.31%
Number of Hedge Fund Holders: 23
Fastly Inc. (NYSE:FSLY) is a cloud computing services provider that describes its network as an edge cloud platform, designed to help developers extend their core cloud infrastructure to the edge of the network, closer to users.
In June, it launched Fastly AI Accelerator, its first AI solution designed to create a better experience for developers by improving performance and reducing costs across the use of similar prompts for LLM apps. Earlier, it released a Bot Origin Protection (BOP) mitigation solution which was well-received by customers, strengthening its security portfolio and opening up opportunities for cross-selling.
Analysts are concerned that its stock may decline due to slowing growth from its largest customers and potential market share loss in the delivery market. Fastly Inc. (NYSE:FSLY) has been facing pricing pressure in its delivery business. The expected weakness, mainly among the top 15 customers, is due to lower renewal rates without corresponding traffic increases. The absence of minimum commitments in contracts with these customers raises the risk of traffic being diverted to cheaper providers.
Despite these risks, the company made $132.37 million in Q2 revenue for this year, up 7.77% year-over-year. Top 10 customers made up 34% of the total revenues. Enterprise customer count increased by 4% sequentially and 50% year-over-year. Its channel partners, the intermediaries between the company and its end-users, grew deal registrations by 33%, and the channel’s revenue contribution more than doubled year-to-date.
The company is prioritizing customer acquisition, portfolio expansion, and innovative edge technologies. This is essential to achieve the aim of $1 billion in revenue in the next few years. Its modern CDN technology offers a competitive advantage over legacy competitors and is preferred by developers. Fastly Inc. (NYSE:FSLY) is actively restructuring to reduce costs and aims to achieve profitability by 2025.
7. Procept Biorobotics Corp. (NASDAQ:PRCT)
Short % of Shares Outstanding As of August 30: 11.59%
Number of Hedge Fund Holders: 21
Procept Biorobotics Corp. (NASDAQ:PRCT) is a surgical robotics company, focused on developing transformative solutions in urology globally. Its innovative robotic platform utilizes AI-powered algorithms to enhance surgical precision, minimize tissue damage, and improve patient outcomes. The company’s flagship product is the AquaBeam Robotic System, designed for minimally invasive urologic surgery, particularly for treating benign prostatic hyperplasia (BPH).
Total revenue in Q2 2024 increased 61.17% year-over-year to $53.35 million, with the US revenue growing 59% to $47.7 million. The company sold 47 AquaBeam Robotic Systems at an average price of $378,000, generating US system revenue of $17.8 million (up 20% from the second quarter of last year). The US handpiece and consumable revenue grew 101% to $27.3 million.
This growth was driven by strong US system sales, increased utilization of existing systems, as well as record international revenues. The company ended this quarter with 400 US systems installed, a 72% increase year-over-year. The US monthly utilization grew by 15%.
Procept BioRobotics Corp. (NASDAQ:PRCT) is actively engaging with hospital CFOs, who are becoming more receptive to investing in its robotic system. The rising demand from patients and proactive urologists is prompting hospitals to prioritize this technology to stay competitive.
During this year, Procept BioRobotics Corp. (NASDAQ:PRCT) initiated enrollment for its first Investigational Device Exemption (IDE) study, PRCT002, which focuses on localized prostate cancer. This FDA-approved single-arm study aims to evaluate the safety and effectiveness of Aquablation therapy in 20 patients with grade Group I and II prostate cancer.
Between late March and June, the company also received positive coverage policies from Blue Cross Blue Shield of Arkansas and Louisiana, which collectively cover approximately 1.5 million lives. These developments are expected to enhance the utilization of Aquablation therapy in treating prostate cancer. Additionally, a focus on AI-driven technology enhances the efficacy of Aquablation therapy.
Procedure growth is fueled by the influx of new surgeons and impressive retention rates exceeding 90%. This enables the company to concentrate on training these new professionals effectively. Furthermore, strategic initiatives such as product development, partnerships, and market expansion are anticipated to enhance the company’s competitive position in the industry.
NCG Small Cap Strategy stated the following regarding PROCEPT BioRobotics Corporation (NASDAQ:PRCT) in its Q2 2024 investor letter:
“PROCEPT BioRobotics Corporation (NASDAQ:PRCT) is a medical device company that has developed and is on the market with a robotic therapy for the treatment of BPH (benign prostatic hyperplasia). We believe PRCT has significant growth opportunity by not only taking share in the existing BPH market but by expanding the number of BPH patients treated each year and expanding into new indications, such as prostate cancer treatment, over time.”
6. C3.ai Inc. (NYSE:AI)
Short % of Shares Outstanding As of August 30: 22.31%
Number of Hedge Fund Holders: 18
C3.ai Inc. (NYSE:AI) is a technology company specializing in enterprise AI, providing a comprehensive suite of products that use AI to empower businesses. It allows companies to rapidly develop, deploy, and manage large-scale AI applications for various uses, and also offers pre-built, industry-specific AI applications for specific business challenges.
Its GenAI products were deployed across 15 industries and had 50,000+ inquiries in the closing fiscal quarter of 2024. In July, it achieved the AWS GenAI Competency, recognizing it as a leading AWS Partner with a successful track record in implementing GenAI technologies. It launched C3 GenAI for government programs It also recently received recognition from Constellation Research as a leading provider of AI and ML platforms.
In FQ1 2025, the company saw a 20.52% year-over-year rise in revenue, recording $87.21 million. This rise was lower than the one seen in FQ4 2024, due to tightening corporate budgets for IT and software amid macroeconomic concerns. Still, the growth was driven by subscription revenue that added $73.5 million, up 20% from a year ago, representing 84% of total revenue.
The company closed FQ1 with 71 agreements, marking a 117% year-over-year increase in new pilots (72 total), and also solidified its presence in state and local government with 25 new agreements. It formed 51 new partnerships, of which 72% of deals were closed through its partner ecosystem. Partner-supported bookings grew by 94% and signed 40 agreements with Google Cloud.
The company is facing challenges as it nears the renewal of its Baker Hughes partnership, which expires in April 2025 and accounts for over a third of its revenue. The partnership has experienced various revisions and controversies over the years.
C3.ai Inc. (NYSE:AI) stands out in the enterprise AI sector which positions it for long-term growth as the value of AI shifts from hardware to software. Analysts recognize this company as a leading AI stock due to its strong market presence and effective execution strategies.
Bireme Capital stated the following regarding C3.ai, Inc. (NYSE:AI) in its fourth quarter 2023 investor letter:
“Our final new short position is in a company called C3.ai, Inc. (NYSE:AI). Originally named “C3 Energy,” C3.ai has changed its name multiple times based on whatever hot new trend they were supposedly capitalizing on. The “energy” theme was about smart grid and cap-and-trade. Then the firm changed its name to “C3 IoT” to attempt to capitalize on the Internet of Things buzz. After that trend fizzled out, the moniker was altered once more, with the company capturing the “AI” ticker in December 2020 – a savvy move if it wants to sell stock to credulous investors, but irrelevant to its business prospects. As Kerrisdale put it, the company is a “minor, cash burning consulting and services business masquerading as a software company.”
5. Lemonade Inc. (NYSE:LMND)
Short % of Shares Outstanding As of August 30: 23.83%
Number of Hedge Fund Holders: 17
Lemonade Inc. (NYSE:LMND) is an AI-powered insurance company that offers renters’ insurance, homeowners’ insurance, car insurance, pet insurance, and term life insurance in the US, together with some contents and liability policies in Germany and the Netherlands and renters’ insurance in France.
AI algorithms help streamline the company’s claims process, automate underwriting, and provide personalized pricing. It is integrating GenAI to optimize operations and improve financial performance. Through significant investments in AI-powered automation, it plans to simplify over 100 business processes. Initial cost-saving prototypes are expected to be developed within the next year and a half. Its GenAI can handle 30% of customer interactions independently.
The company has found a new focus on lower-risk products like pet and renters insurance, expanding into Europe, and introducing homeowners insurance in the UK, France, and select US regions. AI-driven underwriting allows it to identify profitable home insurance opportunities. Additionally, it partnered with third-party insurers in certain areas for home insurance.
Lemonade Inc. (NYSE:LMND) saw a 16.63% year-over-year increase in Q2 2o24 revenue, fueled by increased earned premiums, a slightly higher reinsurance commission rate, and a 45% increase in investment income. The gross loss ratio improved to 79% in Q2 from 94% in Q2 2023.
In-force premium grew 22% year-over-year, while customer count increased by 14%. Premium per customer was up 8%, driven by rate increases.
It is strategically employing AI across its operations, from customer service to internal processes, and seeks to capitalize on the growing trend of digital, personalized insurance products driven by AI.
4. Innodata Inc. (NASDAQ:INOD)
Short % of Shares Outstanding As of August 30: 12.45%
Number of Hedge Fund Holders: 6
Innodata Inc. (NASDAQ:INOD) provides business process, technology, and consulting services through products that aim to help clients create, manage, use, and distribute digital information. The platform uses AI-powered algorithms to automate data annotation, classification, and validation, ensuring data accuracy and consistency.
The company secured a new customer in a major social media platform for its GenAI solutions recently. It also landed a deal with a clinical provider in the healthcare market, marking the first use of its Synodex platform in a clinical context. Furthermore, a federal government agency has contracted Innodata Inc. (NASDAQ:INOD) to provide news briefs and media monitoring using the new GenAI capabilities of their Synodex platform.
In June, it secured two significant new LLM development programs from one of its existing Magnificent 7 Big Tech customers. These programs are projected to deliver approximately $44 million in annual recurring revenue and represent the largest customer win.
All of these expansions together brought the account’s total value to approximately $110.5 million of expected annual run-rate revenue by the end of Q2 2024. The company’s revenue was up 66% year-over-year in this second quarter. Its PR CoPilot AI layer, integrated with the Agility platform, despite only being completed 30%, delivered over $5 million in Q2 revenue.
Innodata Inc. (NASDAQ:INOD) is well-positioned to benefit from the growing demand for GenAI by providing Big Tech companies with essential data and computational resources.
3. SoundHound AI Inc. (NASDAQ:SOUN)
Short % of Shares Outstanding As of August 30: 22.29%
Number of Hedge Fund Holders: 15
SoundHound AI Inc. (NASDAQ:SOUN) is a voice AI and speech recognition company that develops speech recognition, natural language understanding, sound recognition, and search technologies, with the help of advanced AI algorithms. It was the first company to introduce ChatGPT-like capabilities to in-vehicle assistants in Japan and Latin America.
It has cars in production in 20+ markets, with a new deal signed with a US-based EV maker, and an expansion of an existing EV manufacturer in Europe. It also acquired Amelia AI for $80 million in Q2 2024 and purchased Allset. It expanded its customer base by securing deals with 5 of the top 15 QSRs based on location.
In late August, On August 28, 2024, SoundHound AI Inc. (NASDAQ:SOUN) partnered with MUSC Health to launch Emily, an AI agent powered by the Amelia Patient Engagement solution. Integrated with Epic, Emily offers 24/7 appointment management and support for non-clinical questions, enhancing patient satisfaction and operational efficiency.
Since 2021, the company’s revenue has grown by 50% annually. In Q2 2024, revenue grew 54% year-over-year, primarily driven by strong customer momentum across various industries, including automotive and healthcare. Cumulative subscriptions and bookings backlog doubled to $723 million, and annual query volume surpassed 5 billion.
In September, it launched customization tools for its SoundHound Chat AI voice assistant to improve customer interactions in vehicles. These tools enable automotive manufacturers to tailor responses and provide onboarding features, enhancing the in-car experience for drivers.
The company’s advanced AI technology and strong foundation model are driving customer adoption, positioning the company for future growth. While investors should be prepared for volatility, SoundHound AI Inc.’s (NASDAQ:SOUN) focus on voice AI makes it a promising investment opportunity.
2. Rekor Systems Inc. (NASDAQ:REKR)
Short % of Shares Outstanding As of August 30: 17.49%
Number of Hedge Fund Holders: 9
Rekor Systems Inc. (NASDAQ:REKR) provides infrastructure solutions for transportation, public safety, and urban mobility markets globally through AI-powered software, which uses advanced AI algorithms to analyze video data from cameras, enabling real-time traffic monitoring, vehicle identification, and incident detection.
Its flagship product is Rekor Command, a cloud-based platform. Rekor Command reduced secondary crashes by 29% and improved incident resolution times by 44 minutes in Q2. Rekor Systems was recognized by ITS Americas as a leader in AI for digital infrastructure and transportation. Another product, Rekor One, is an AI-powered roadway intelligence platform.
Recently, the company secured a $1.5 million contract with Maryland DOT to deploy Discover across major corridors. It also expanded into Colorado’s Pitkin County and secured over $15 million in new contracts, expanding its reach to Ohio and Texas. Additionally, Rekor Command has expanded to Oklahoma, Kansas, and Oregon.
The company is a rapidly growing enterprise in the Baltimore area and has recently been granted several new technology patents, highlighting its dedication to developing AI-powered insights.
In Q2 2024, its revenue grew 45.12% year-over-year, with a 27% sequential rise driven by the mentioned increased contracts, expansion of services, and strategic financing. It has announced plans to deploy up to 1,000 Discover and Edge units in one of the largest US states, with an estimated potential revenue of $35 million.
The company faces liquidity challenges and relies on external financing, but analysts are optimistic about its future. Strategic partnerships and technology advancements could lead to profitability by 2024 or early 2025, as the company plans to expand its market presence and generate significant cash flows in the transportation infrastructure sector.
1. Luminar Technologies Inc. (NASDAQ:LAZR)
Short % of Shares Outstanding As of August 30: 19.02%
Number of Hedge Fund Holders: 8
Luminar Technologies Inc. (NASDAQ:LAZR) develops vision-based LiDAR and machine perception technologies, primarily for self-driving cars, one of the most significant applications of AI. Its LiDAR sensors utilize laser beams to create detailed 3D maps of the surrounding environment, enabling vehicles to perceive their surroundings accurately and safely.
The company made 16.45 million in revenue in Q2 2024, recording a 1.57% year-over-year growth. However, there was a 22% sequential decline, due to some ongoing contract renegotiations, and also a slowed-down production ramp for its first global production vehicle with standardized LiDAR, particularly for Volvo Cars.
The company’s collaboration with Polestar remains strong. Their first vehicle equipped with the company’s LiDAR, the Polestar 3, is scheduled for release next year, and they have plans to integrate Luminar technology into additional models in the future.
It also announced a significant restructuring of its debt, reducing it by approximately $148 million and extending maturities from 2026 to 2030. Additionally, it raised $100 million in new capital through non-convertible Senior Secured Notes due in 2028.
Management emphasized the focus on improving operational efficiency and cost management, which included a reduction in workforce by about 20% and efforts to streamline product development processes. These plans are aimed at positioning the company for future growth and profitability.
While we acknowledge the growth potential of Luminar Technologies Inc. (NASDAQ:LAZR), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LAZR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
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