We recently compiled a list of the 10 Worst Artificial Intelligence (AI) Stocks To Buy According to Financial Media. In this article, we are going to take a look at where iRobot Corp. (NASDAQ:IRBT) stands against the other AI stocks.
Is a 0.5% Rate Cut Aggressive?
Analysts have long predicted interest rate cuts and the Fed just lowered rates by 0.5% on September 18th. This is the first rate cut since the pandemic, driven by concerns about the labor market, and was followed by market volatility. The new benchmark rate is between 4.75% and 5.0%, with more cuts expected. Fed Chairman Jerome Powell stated that these cuts are based on economic data, not political factors.
We have had several analysts supporting or opposing the 50 basis-point rate cut, both before and after the announcement was finally made. We recently discussed the President at Potomac Wealth Advisors, Mark Avallone’s, stance on this aggressive decision made by the Fed. Here’s an excerpt from our article on the 10 Worst Small Cap AI Stocks To Buy According to Short Sellers, that covered his opinion:
“Mark Avallone expressed surprise at the Fed’s decision but emphasized that investors shouldn’t make impulsive decisions, but rather utilize potential opportunities in small and mid-cap stocks, which he believes will benefit from a lower interest rate environment…. Avallone warned investors to be cautious with traditional banks, especially mid-sized and large ones, based on his experience at Bank of America. He believes that the recent changes in loan pricing after the Fed’s rate cut would hurt banks’ overall revenue and income from interest…. He suggested that it may be too late for significant moves in fixed-income investments, as many investors have already lengthened their bond durations. He recommended pausing further adjustments until it’s clear whether the rate cut is due to an economic slowdown or a preemptive action.”
After announcing that the Central Bank has lowered interest rates by half a point, Fed Chair Jerome Powell took questions from reporters regarding this first-ever cut decision since 2020. He emphasized their commitment to timely monetary policy adjustments, particularly in light of the current economic landscape. The Fed believes they aren’t behind the curve, and the decision to cut rates reflects a strong commitment to avoid falling behind.
In response to a question about whether the rate cut was influenced by recent employment data or the high nominal level of the federal funds rate, he clarified that their policy position was established in July 2023, a period characterized by high inflation and low unemployment. He highlighted their patience in reducing the policy rate, noting that other central banks had already implemented multiple cuts while the Fed had refrained from such actions until now. This patience has reportedly paid off, as there is now greater confidence that inflation is trending sustainably toward the 2% target.
Powell indicated that the recent rate cut should not be interpreted as a new pace for future adjustments but rather as part of a recalibration of policy toward a more neutral level. He referred to the Summary of Economic Projections (S.E.P.) as a guide for understanding potential future cuts, emphasizing that economic developments could lead to adjustments in either direction.
When asked about implications for balance sheet policy following this larger rate cut, he noted that reserves within the banking system remain stable and abundant. He clarified that there are no plans to halt balance sheet runoff as a result of this decision, indicating that both monetary policy easing and balance sheet management can occur concurrently.
With a lower interest rate environment, investors everywhere are looking to either make a decision about their current AI stock holdings or diversify their portfolios with a higher ratio of AI stocks. But how has the September cut really impacted the AI sector? The Futurum Group Chief Market Strategist, Cory Johnson, just discussed what Fed rates mean for the tech sector as they invest more into artificial intelligence.
The recent decision by the Fed to lower interest rates has initiated a ripple effect in the tech sector, which can lead to increased tech spending and potentially larger venture capital investments. Corey Johnson noted that the current environment is favorable for tech stocks.
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.
As for venture capital, Johnson noted that there is significant activity in the Bay Area, particularly with semiconductor startups. He observed that many new projects have been announced recently, indicating a robust interest in this sector. Interestingly, he pointed out that securing funding often happens before a product is fully developed so investors are increasingly focused on assembling the right teams rather than just having a finished product.
Overall, Johnson’s insights reflect a positive outlook for tech spending and venture capital investment in light of the Fed’s rate cuts, particularly within the AI and semiconductor sectors. As companies adapt to changing financial conditions, Powell’s discussion of the Fed’s strategic approach presents investors with both opportunities and challenges. We’re here to help you navigate the situation better with a list of the 10 worst artificial intelligence (AI) stocks to buy according to financial media.
Methodology
To compile our list, we sifted through rankings of AI stocks on different financial media websites to compile a list of 20 possible AI stocks. We then selected the 10 stocks that were the least popular among elite hedge funds and that analysts were bearish on. The stocks are ranked in descending order of the number of hedge funds that have stakes in them, 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).
A close-up photo of a robotic vacuum cleaner, highlighting its advanced design and home innovation capabilities.
iRobot Corp. (NASDAQ:IRBT)
Number of Hedge Fund Holders: 17
iRobot Corp. (NASDAQ:IRBT) is a technology company that designs and builds consumer robots, most notably a range of autonomous home vacuum cleaners (Roomba), floor moppers (Braava), and other autonomous cleaning devices. With more than 30 years of AI and advanced robotics experience, it uses AI to make its robots more intelligent and efficient, providing a better user experience.
In Q2 2024, the revenue declined 36% in the US, 35% in Japan, and 22% in EMEA, and D2C revenue represented 23% of total revenue. Despite challenges in this quarter, including a year-over-year revenue decline of 29.68% to $166.36 million, the company is improving its financial position.
Under new CEO Gary Cohen, the company has implemented a restructuring plan to reduce operating expenses and improve product margins. Workforce reductions and more efficient marketing strategies contributed to a 28% year-over-year decrease in operating expenses for Q2.
iRobot Corp. (NASDAQ:IRBT) announced the launch of the Roomba Combo 10 Max, its most advanced cleaning robot yet, in mid-July. This 2-in-1 robot vacuum and mop features a multi-function AutoWash Dock and is part of the company’s strategy to enhance its product lineup.
It also announced the creation of iRobot Labs, its innovation center. This global initiative aims to use internal talent and partnerships to reduce time to market and maintain technological leadership, with a commitment to reclaiming its position as the global innovation leader in consumer robots. The announcement also emphasized the growth potential in the functional cleaning devices market, particularly in Europe.
With upcoming product launches in 2025, the company is well-positioned to regain its leadership in the consumer electronics market, making it an attractive stock for long-term investors.
Overall IRBT ranks 2nd on our list of the worst AI stocks to buy according to finance media. While we acknowledge the potential of IRBT as an investment, 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 IRBT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
