In this article, we will be taking a look at the 20 worst performing AI stocks of last week.
US Stocks in September
This September saw a sluggish start for most US stocks, and large-cap technology stocks were no exception to this trend. The main driving factors for this development include concerns over the health of the American economy resurfacing, particularly in light of the August jobs report. The report underscored the labor market’s weakness in the US, which has not left investors feeling all that secure about the state of the economy.
On the stock side, many investor favorites in the artificial intelligence (AI) space have been doing poorly so far in September, with losses ranging from around 4% to even over 20% for the first week of September. The primary reason for this decline seems to be that investors are just not satisfied with the growth demonstrated by major AI companies at present. While growth is definitely present, it’s continuing to fall short of investor expectations, which have increased exponentially in light of the hype cycle created around AI stocks.
Are We Really In An AI Bubble?
The first week of September was actually the worst week for chip stocks recorded in over two years. Many investors are now beginning to wonder whether AI is worth the amount of money being poured into it, resulting in corporate spending on AI coming under greater scrutiny than ever before. The greater scrutiny is predominantly because of investors and analysts now thinking that many AI stocks are overhyped and overvalued and don’t have the means to justify this hype and valuation – essentially, the main concern is that we’re in an AI bubble that’s on the brink of bursting.
However, as with any high-tension market situation, there are diverging opinions as well. In his September 6 interview on CNBC’s “Closing Bell Overtime,” Deepwater Asset Management’s managing partner, Gene Munster, emphatically stated that we are not in an AI bubble. For him, the bigger problem in the AI space is that every other company today is trying to talk about AI and say that it’s working towards AI incorporation in its operations – something that’s leading to a lot of noise in the market, which is drowning out the voices of companies offering real substance in this space. He thus noted that it’s important for investors to be careful not to invest in just any company that says it’s working with AI and instead to focus on the better, perhaps more boring, options in the market.
According to Munster, the main players to keep your money in are predominantly big tech names, as these are the only companies that are poised to deliver substantial growth instead of just generating noise. However, investors are still confused about whether AI is a good place to invest in even today, which is why we’ve compiled a list of the worst performing AI stocks in September so far and explained whether these stocks are worth picking up or if they’re just temporary beneficiaries of the hype around AI.
A scientist at a computer station, surrounded by a neural network of artificial intelligence code.
Our Methodology
We compiled our list by screening for AI stocks that have seen declines of 10% or above in the first week of September, and then ranked the stocks based on their weekly decline as of Friday, September 6. We have also mentioned the number of hedge funds holding stakes in each stock.
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).
20 Worst Performing AI Stocks of Last Week
20. Flex Ltd. (NASDAQ:FLEX)
Weekly Decline: 10.81%
Number of Hedge Fund Holders: 46
Flex Ltd. (NASDAQ:FLEX) is an information technology company based in Austin, Texas. It provides manufacturing solutions and incorporates advanced manufacturing capabilities, including AI and ML, in its fabrication, assembly, and test processes.
While Flex Ltd. (NASDAQ:FLEX) has been following other tech and AI stocks in their downward plunge, the company seems to be financially sound and has good prospects for growth. In its first-quarter fiscal 2025 earnings call, Flex Ltd.’s (NASDAQ:FLEX) management noted that the company has been making strong progress in multiple large program ramps across its cloud, power, and automotive businesses. Through this progress, these programs have begun generating revenue, with Flex Ltd. (NASDAQ:FLEX) overall raking in $6.3 billion in revenue for the first quarter – up 2% sequentially but down year-over-year.
The macro-environment seems compatible with Flex Ltd.’s (NASDAQ:FLEX) business model as well. The AI transition in data centers is the main reason why the company is seeing strong demand for its cloud solutions and power products.
The only issue investors may find with this stock, as with many other AI players, is that revenue generation seems to be slower than anticipated – as evidenced by the first-quarter results as well. However, seeing as Flex Ltd. (NASDAQ:FLEX) is focusing on expanding its technical and advanced manufacturing capabilities to create differentiation and position itself for sustained growth and profitability, existing shareholders may yet see more value in the stock.
There were 46 hedge funds long Flex Ltd. (NASDAQ:FLEX) in the second quarter, with a total stake value of $923.8 million. Lyrical Asset Management was the largest shareholder, holding 9,266,933 shares.
Artisan Partners mentioned Flex Ltd. (NASDAQ:FLEX) in its first-quarter 2024 investor letter:
“We initiated new GardenSM positions in Flex Ltd. (NASDAQ:FLEX), On Holding and Onto Innovation during the quarter. Flex provides outsourced electronic manufacturing services to a diverse set of end markets. The company hired a new CEO in 2020, who has been driving a strategic pivot toward manufacturing high-value products in areas such as health care, industrial, automotive and cloud infrastructure. Today, these higher value items account for ~60% of revenues, and we believe they will continue to tick higher. We also believe an improving business mix, along with the reshoring of supply chains, will lead to faster growth and higher margins.”
19. Micron Technology, Inc. (NASDAQ:MU)
Weekly Decline: 10.87%
Number of Hedge Fund Holders: 120
Micron Technology, Inc. (NASDAQ:MU) is a semiconductor company that offers memory and storage products. It is based in Boise, Idaho.
While Micron Technology, Inc. (NASDAQ:MU) started 2024 on a stronger footing, the stock has been disappointing investors for at least the past three months as it has remained on a prolonged downward trajectory. Despite this, a closer look at the company’s financials shows that Micron Technology, Inc. (NASDAQ:MU) has actually been doing well. In the fiscal third quarter of 2024, the company generated revenue of $6.8 billion, versus the $3.7 billion figure from the same period a year ago – so the company’s revenue has jumped by over $3 billion in a year. Operating cash flow has also risen significantly year-over-year, coming in at $2.5 billion in the third quarter versus $24 million in the same period a year ago.
One of the reasons why Micron Technology, Inc. (NASDAQ:MU) may be struggling is that it’s still recovering from an inventory glut from last year, which is also why last year’s financials are significantly lower than this year’s. The company’s CEO has also noted that their seeing robust AI demand, which is the primary factor for the 17% sequential revenue growth. Additionally, Micron Technology, Inc. (NASDAQ:MU) is gaining more market share in high-margin products like High Bandwidth Memory, demonstrating the strength of the company’s AI product portfolio.
Industry tailwinds in smartphone, personal computer, and data center growth all look excellent for Micron Technology, Inc. (NASDAQ:MU), which is why a lot of investors are sticking with the stock despite its disappointing performance. This is because they also realize that the reason Micron Technology, Inc. (NASDAQ:MU) isn’t performing well right now is that it’s investing heavily in capital expenditures to expand its manufacturing capacity. In the third quarter alone, it invested $2.06 billion in CapEx. This investment will hold the stock back for now but may lead to higher growth in the future, especially since Micron Technology, Inc. (NASDAQ:MU) is making these investments at an opportune time when it has the US government’s support to expand its manufacturing capacity.
We saw 120 hedge funds long Micron Technology, Inc. (NASDAQ:MU) in the second quarter, with a total stake value of $5.2 billion. Citadel Investment Group was the most prominent shareholder, holding 7,059,800 shares.
18. Arista Networks, Inc. (NYSE:ANET)
Weekly Decline: 10.96%
Number of Hedge Fund Holders: 65
Arista Networks, Inc. (NYSE:ANET) is an information technology company that offers data-driven client-to-cloud networking solutions for data center, campus, and routing environments. The company also provides the best IP/Ethernet-based solutions for AI/ML workloads.
In the second quarter, Arista Networks, Inc. (NYSE:ANET) delivered revenues of $1.69 billion, which represents a growth of 15.8% year-over-year, and also beat the first quarter’s revenue of $1.5 billion. This type of growth is quite typical for companies serving the AI market and the expansion in data centers like Arista Networks, Inc. (NYSE:ANET). This company’s products, particularly in the ethernet space, enable AI connectivity, which is essential for AI and tech companies.
According to several analysts, we are going to see upgrades worth $1 trillion to our existing data center infrastructure, so Arista Networks, Inc. (NYSE:ANET) is also poised to greatly benefit from this tailwind. The company’s management also completed repurchases of its common stock worth $2 billion in the first quarter and further authorized an additional program to repurchase up to $1.2 billion worth of shares.
Stock buybacks are generally a good indicator in terms of valuation because they indicate that company management feels that the stock is undervalued. It represents a certain confidence on the part of company management, highlighting that they are aware of the market and the value of their product offerings. Since Arista Networks, Inc. (NYSE:ANET) is offering both optimal networking for AI platforms and AI for networking outcomes, such confidence may be well-place. In light of this, the stock’s current negative performance should not discourage long-term investors from retaining or buying Arista Networks, Inc. (NYSE:ANET) shares.
A total of 65 hedge funds were long Arista Networks, Inc. (NYSE:ANET) in the second quarter, with a total stake value of $1.9 billion. Citadel Investment Group was the largest shareholder, holding 859,600 shares.
