We're less than halfway through 2023, but it already looks like it will forever be remembered as the year artificial intelligence (AI) made its mark on the stock market. New generative AI applications, such as ChatGPT, began fueling public interest late last year. However, the stock market didn't seem to notice until they digested news this spring that Microsoft had invested over $10 billion into the chatbot's parent company, OpenAI.
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Over the past three months, shares of these three AI-related businesses have soared between 39% and 66%, but what about the road ahead? Before risking any hard-earned money on these AI stocks, here's what you should know.
1. C3.ai
With "AI" as its ticker symbol, it's easy to see how C3.ai (AI 3.02%) got swept up in the AI stock craze. Shares of the enterprise AI software provider have gained 66% over the past three months.
Unfortunately, betting on a repeat performance from this stock probably isn't a great idea. According to management, interest in applying AI to business processes is more active than its ever seen. Unfortunately, enterprise customers are looking to C3.ai's competitors for solutions. Sales during the company's fiscal fourth quarter ended April 30 rose just $0.1 million year over year to $72.4 million.
A stagnating top line is a particularly bright red flag for this growth stock because the business is bleeding money and the losses are widening. C3.ai's annual net loss expanded by 40% year over year to a frightening $269 million in fiscal 2023. It's probably best to keep this stock on a watchlist until its bottom line starts moving in a positive direction.
2. Shopify
Shopify (SHOP 1.11%) is a leader in the e-commerce industry, and it became that way by offering merchants software tools that help run and expand their businesses. This April, the company introduced Shopify Magic and highlighted its ability to crank out AI-generated product descriptions.
An AI tool that generates product descriptions may not seem important, but Shopify Magic could make a big difference for merchants. That's because there are millions of products for sale on the platform that currently lack product descriptions.
Product descriptions are good for more than just reading material. They make the products they're attached to much easier to find. Paid subscribers can use Shopify Magic for free, which will make the subscription service even stickier than it already is.
Shopify's subscription services were already increasingly popular without Shopify Magic's contribution. First-quarter subscription solution revenue rose 11% year over year.
Before running out to buy all the Shopify shares you can find, you should know the market already has very high expectations for the e-commerce software provider. It's currently trading at 197 times forward-looking earnings expectations. It's probably best to wait for a more attractive entry point.
3. Bill Holdings
Bill Holdings (BILL 3.21%), more commonly known as Bill.com, runs an AI-powered bill-paying platform for small and mid-size businesses (SMBs). With a network that includes millions of partners, Bill.com's software does a lot more than just scan handwritten invoices for information -- it allows SMBs to manage their cash flows with automated solutions.
Bill.com's attracting new customers and retaining old ones at a healthy pace. The company served 455,300 businesses at the end of March, which was 18% more than it served a year earlier.
Bill.com isn't just drawing in more customers. Its current customers are deepening their relationships and spending more. Revenue during fiscal 2023, which ends on June 30, is expected to climb 62% year over year to $1.04 billion.
Bill.com is still losing money, but unlike C3.ai, its losses are narrowing. During its fiscal third quarter ended March 31, its net loss shrank to just $31 million. For fiscal 2023, the company expects to report about $172 million in adjusted earnings.
Bill.com's business is growing fast, but a lot of future growth is already baked into the stock's price. It's currently trading at around 73 times forward-looking earnings estimates. If the company's eye-popping growth rate slows over the next few years, investors buying at recent prices could face heavy losses. If you're going to add this stock to a portfolio, make sure it's a diversified one first.
