In this article, we will discuss the 10 Worst Artificial Intelligence Stocks to Buy Under $10.
With technology evolving at a dynamic speed, many companies have changed their way of carrying out operations as they focus on integrating AI into their complex and day-to-day activities. Integration of AI into business operations requires significant investment in infrastructure and specialized talent. Experts believe that 2022 was the year in which generative artificial intelligence (AI) exploded in the public’s consciousness, and in 2023, the technology started to take root in the business world.
Therefore, 2024 and the upcoming years are expected to be critical years for the future of Al, with researchers and enterprises planning to integrate this revolutionary technology into their operations. Some of the current AI trends that are expected in the upcoming years include multi-modal Al, smaller language models and open-source advancements, GPU shortages, cloud expenses, regulation, copyright, and ethical AI concerns, among others.
Surge in Al Adoption
As per the McKinsey Global Survey on AI, ~65% of respondents have highlighted that their organizations continue to use gen AI, nearly double the percentage compared to the survey conducted earlier. Organizations have been seeing strong benefits from the use of generative AI, reporting both cost decreases and revenue jumps in the segments using AI technology.
The interest in gen-AI seems to have brightened the spotlight. McKinsey mentioned that, for the previous 6 years, adoption of AI by respondents’ organizations was hovering at ~50%. However, this year, the survey revealed that adoption increased to ~72%. Notably, the interest has been global in scope. The company’s 2023 survey highlighted that AI adoption didn’t reach 66% percent in any region. However, this year over two-thirds of respondents in nearly every region mentioned that their organizations are deploying this transformative technology. Industry-wise, the strongest increase was seen in professional services.
AI’s rapid evolution and its potential to shape the future continue to revolutionize several industries throughout the globe. As per a survey published on Forbes Advisor, the most commonly used AI cases in businesses consist of customer relations, cybersecurity, fraud management, digital personal assistants, inventory management, content production, and others. When discussing leveraging the top AI trends, businesses continue to rely on predictive analytics to make strategic decisions. For example, using predictive analytics in the manufacturing industry can help in predicting unexpected machine failures and costly breakdowns.
Another factor because of which AI has seen increased adoption is the deployment of multi-modal Al. It leverages machine learning trained on multiple modalities, like speech, images, video, and traditional numerical data sets. As a result, it helps in creating holistic and human-like cognitive experiences.
As a result of increased adoption, Al continues to see strong global investments.
Investments in Al
Al investments have been ramping up at an unmatched speed. As per Goldman Sachs Economic Research, global investment in AI technologies should touch $200 billion by 2025. Making investments in generative AI provides potential economic growth and improves labor productivity by ~1% annually. Additionally, the investment in AI can peak as high as ~2.5% to ~4% of GDP in the US and ~1.5% to ~2.5% in other AI leaders.
Global corporate investment in AI saw a strong increase over the past decade. A Stanford University analysis estimated that the sum of assets and acquisitions from minority stakes, private investments, and public offerings came in at $934.2 billion from 2013 to 2022. Moreover, recent investment peaked in 2021, reaching ~$276.1 billion with the evolution of ChatGPT.
As per EY’s recent survey, ~30% of respondents highlighted that their business is planning to invest at least $10 million in AI next year. This demonstrates an increase from the current level of 16%. With the transition to the next phase of full-scale AI integration, leaders are required to develop a holistic strategy that recreates the entire enterprise ecosystem to create an AI-centric business model.
Source: unsplash
Our methodology
We compiled an initial list of 25 possible stocks by sifting through online rankings and ETFs. We then picked the 10 stocks that were the least popular among hedge funds and were trading at less than $10 per share. Finally, the stocks were ranked in the descending order of their hedge fund sentiment, as of Q2 2024.
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 Artificial Intelligence Stocks to Buy Under $10
10) Alight, Inc. (NYSE:ALIT)
Number of Hedge Fund Holders: 42
Share Price As On September 19: $7.36
Alight, Inc. (NYSE:ALIT) offers cloud-based integrated digital human capital and business solutions. Alight LumenAI is its next-generation artificial intelligence (AI) engine which bolsters the Alight Worklife platform.
Bears believe that Alight, Inc. (NYSE:ALIT)’s ongoing transformation and leadership changes might weigh over its stock price moving forward. The company’s transition was complicated by a change in its chief executive. The CEO transition brings uncertainty surrounding Alight Solutions. Alight, Inc. (NYSE:ALIT) announced a decision to sell its payroll and professional services business. This ultimately brought significant uncertainty regarding the profile and growth of its core business.
In 2Q 2024, the company’s business was impacted by lower volumes, net commercial activity, and project revenue within its Employer Solutions segment. Also, the wind-down of its Hosted business operations weighed over its performance. Its revenue declined 4.1% to $538 million against $561 million in the prior-year period. The company expects its non-recurring project revenues to fall 20% in 2H 2024.
On the other hand, Wall Street seems to be quite optimistic given the recent completion of its cloud migration transformation. As a result of this completion, Alight, Inc. (NYSE:ALIT) should achieve $75 million in annualized savings. Now, the company focuses on its technology-rich benefit services business. There are expectations that the company will see double-digit annual recurring revenue (ARR) bookings growth for the latter half of 2024.
Alight, Inc. (NYSE:ALIT)’s adjusted EBITDA margin should expand to ~28%, thanks to the annual cost savings from the cloud migration. Also, the company continues to reorganize its go-to-market structure to target strategic accounts. This should help it in driving more deals.
DA Davidson reaffirmed a “Buy” rating on the shares of Alight, Inc. (NYSE:ALIT), giving it a price target of $12.00 on 20th June. Insider Monkey’s 2Q 2024 data revealed that the company was held by 42 hedge funds. Meridian Funds, managed by ArrowMark Partners, released its second quarter 2024 investor letter. Here is what the fund said:
“Alight, Inc. (NYSE:ALIT) is a leading cloud-based human capital technology provider of enterprise-level software that helps businesses and their employees manage critical human resources functions. Through its investments in software and automation, Alight has built a distinct advantage that allows its customers to deliver HR services at a much lower cost while providing a better experience for employees. We slightly trimmed the position early in the quarter when the stock appreciated on the announced sale of a non-strategic business unit and news that an activist investor had initiated a position. Later in the period, the stock declined when Alight announced weaker-than-expected results. We believe the softer quarter will prove to be an isolated event.”
9) Margeta, Inc. (NASDAQ:MQ)
Number of Hedge Fund Holders: 35
Share Price As On September 19: $5.18
Margeta, Inc. (NASDAQ:MQ) is engaged in developing and publishing a commerce payments platform. In 2023, the company unveiled Margeta Docs Al, which is an Al-powered external-facing question-and-answer tool. This helps the users quickly navigate the Margeta Docs site, integrate with its APIs more efficiently, and reduce the overall time to value for the customers.
Margeta, Inc. (NASDAQ:MQ)’s stock is being closed-tracked by the bears as they believe that the recent decline in gross profit can be a concern. In 2Q 2024, it saw a gross profit of $79 million, reflecting a fall of 6% YoY, mainly because of the new pricing for Cash App. Moreover, even though Margeta, Inc. (NASDAQ:MQ) saw growth in TPV and strategic advancements, it missed expectations in net revenue and gross profit. Also, the company’s founder resigned as CEO in August 2022. Later, he resigned from the board as Executive Chairman in June 2024, raising concerns about the growth outlook. Also, Block, Inc. (SQ), the company’s largest customer, renewed the relationship in the prior year in a 4-year contract which consisted of a 40% lower take rate. This impacted Margeta, Inc. (NASDAQ:MQ)’s growth profile.
On the other hand, market experts believe that Margeta, Inc. (NASDAQ:MQ) should see strong growth over the long term as it is positioning itself for healthy future growth via strategic partnerships and technological advancements. Margeta, Inc. (NASDAQ:MQ) is focusing on the financial services sector, mainly in embedded finance. This, together with its expansion in Europe demonstrates a long-term strategy targeted at capturing market share and achieving profitability.
Considering the upcoming holiday season, Margeta, Inc. (NASDAQ:MQ) expects a shift towards BNPL and a healthy upside from existing customer growth and cross-selling capabilities. Its presence in Europe, and the upcoming launch of the Power Credit platform (as highlighted in 2Q 2024 earnings call), should support it in international expansion and innovation in financial technology.
Susquehanna reiterated a “Positive” rating on the company’s shares, giving a price target of $9.00 on 6th August. As per Insider Monkey’s 2Q 2024 data, Margeta, Inc. (NASDAQ:MQ) was held by 35 hedge funds.
8) Applied Digital Corporation (NASDAQ:APLD)
Number of Hedge Fund Holders: 29
Share Price As On September 19: $5.56
Applied Digital Corporation (NASDAQ:APLD) is a designer, builder, and operator of next-gen digital infrastructure, which is designed for Artificial intelligence (AI) and High-Performance Computing (HPC) applications, cloud services, and data center hosting.
Applied Digital Corporation (NASDAQ:APLD)’s stock price might be impacted due to its considerable debt obligations, with $67.2 million in debt repayments made in 2024. Despite securing loans and raising capital, its debt-to-equity ratio indicates increased reliance on borrowing. In early 2024, Applied Digital Corporation (NASDAQ:APLD) highlighted that it was experiencing installation delays as a result of networking components that were not delivered. Most recently, the company saw a massive power outage at its 180 MW Ellendale facility because of bad transformers. As a result of such issues, selling the Bitcoin mining business to Marathon Digital wasn’t a surprise, and might be a signal of distressed business.
On the other hand, Applied Digital Corporation (NASDAQ:APLD) continues to make strides in developing its cloud services and data center hosting businesses. Moreover, it continues to work on securing financing and finalizing lease agreements for its high-performance computing (HPC) data center campuses. While the company was able to execute a letter of intent (LOI) with a U.S. hyperscaler for 400 megawatts at the Ellendale campus, it expects revenue growth over upcoming quarters. Its cloud AI business seems to be well-positioned for growth with the right financing structure. The company anticipates sequential improvements in its revenues as it enters 1Q 2025.
In FY 2024, Applied Digital Corporation (NASDAQ:APLD) saw its revenues increase by $110.2 million, or 199%, from $55.4 million in FY 2023 to $165.6 million in FY 2024. This growth stemmed from increased capacity across its 3 Data Center Hosting facilities.
B.Riley upped its target price on shares of Applied Digital Corporation (NASDAQ:APLD) from $8.00 to $9.00, giving the stock a “Buy” rating on 13th June.
