Nvidia attracted plenty of investor excitement this year thanks to the increased hype surrounding artificial intelligence (AI). That excitement was enough to help it exceed a $1 trillion market cap. But there are several other AI-related stocks doing just as well that have not generated nearly as much fanfare.
Upstart Holdings (UPST +2.80%), MicroVision (MVIS -1.70%), and Meta Platforms (META +4.06%) all saw their stocks at least double in value this year (although MicroVision has since dropped down to just an 81% gain in 2023). Let's look at how these three companies can expose your portfolio to the increased interest around AI and see whether any of these stocks are good buys at the moment.
1. Upstart Holdings
Since the start of 2023, the share prices of Upstart Holdings skyrocketed nearly 140%. But given the stock's 91% losses in 2022, it might be of little solace to investors who have owned the stock since 2021.
NASDAQ: UPST
Key Data Points
Upstart's business centers around using AI to help lenders make better decisions about what loans to approve. Upstart's software analyzes thousands of data points to more accurately assess an applicant's creditworthiness than the current standard (Fair Isaac's FICO scores), according to Upstart management. This more accurate assessment, in turn, allows lenders to take on more loans from a broader assortment of applicants without increasing their risk of approving applicants who will default.
Upstart was doing well and setting new records of loan applications and approvals until the rising-interest-rate environment last year spooked lenders who were worried about increased defaults and reduced loan applicants who could no longer qualify for or didn't want higher-interest loans. Investors were quick to dump the stock as sales fell and the business incurred losses.
Demand for its services simply hasn't been there from its lending partners. During the first three months of 2023, the company's revenue totaled $103 million, a decline of 67% year over year. But with the Fed recently pausing rate hikes (even if temporarily) and investors being more bullish on tech stocks this year, Upstart has benefited from that renewed excitement.
Where the stock goes from here depends, in part, on the outlook for the economy. I would be hesitant to buy into Upstart's rally right now because a recession could still happen this year and because interest rate hikes might not be over just yet. The next year or so still looks tough for Upstart, and the safest option for most investors right now is a wait-and-see approach.
2. MicroVision
MicroVision has been a red-hot stock, more than tripling at one point for the year. But it gave back some of its gains last week after the company announced a supplemental share offering. The market reacted quite negatively, forcing management to opt not to make an offering, but it didn't stop the partial selloff.
NASDAQ: MVIS
Key Data Points
MicroVision makes lidar sensors that are used in self-driving vehicle systems. While it isn't a direct AI stock, the sensors it produces are vital to the AI systems made by other companies. MicroVision generated impressive growth in 2023's Q1 with revenue of $782,000, more than double 2022's Q1.
MicroVision's net loss was more than $19 million. And during the quarter, it burned through $13.8 million from its day-to-day operations. Cash burn is a big problem at the moment as it ramps up production. Although the company withdrew its plans for a supplementary stock offering, it's likely only a matter of time before management looks for ways to raise additional funding. As of the end of March, the company had $71 million in cash and investments on its books.
MicroVision's stock price volatility, limited revenue, and high likelihood of cash burn all suggest that risk-averse investors might be better off avoiding the stock right now.
3. Meta Platforms
Meta Platforms share prices are up 134% year to date. The stock is close to recovering all of 2022's heavy losses and trades very close to its 52-week highs.
NASDAQ: META
Key Data Points
Meta Platforms is primarily known for social media, with its WhatsApp, Instagram, and Facebook applications being used by billions of people worldwide every month. More recently, the company has turned a significant part of its focus to developing the metaverse segment of its operations.
The tech giant also invested heavily in AI over the past few years. According to a report from Reuters, management says the company is still behind others in its AI efforts and might need to invest even more to bridge the gap. One way it plans to utilize the technology is with AI-powered ads. It recently launched an AI development "sandbox" for advertisers, which management says will be a "testing playground for early versions of new tools."
Meta's rise in stock value this year has less to do with AI and more to do with a general recovery among tech stocks as well as an improvement in its first-quarter bottom line. The danger for investors is that with the company still spending billions on the metaverse and now potentially sinking more money into AI development, the already beaten-down bottom line could look even worse in the future. In Q1, net income of $5.7 billion declined 24% year over year. Losses from its Reality Labs division (i.e., the metaverse) came in at just under $4 billion.
This is another tech stock that investors might be better off holding off on until the company can get its bottom line back on clearly a positive trajectory. Meta's rough 2022 earnings are improving, but continue to decline year over year. There are concerns there might be too much bullishness behind the stock right now, and a sell-off could come later this year.
