Many tech stocks rallied last year as demand for cloud, software, and e-commerce services surged throughout the coronavirus pandemic. That’s why the tech-heavy Nasdaq Composite rose more than 43% over the past 12 months as the S&P 500 advanced more than 16%…
I recently highlighted several promising tech stocks that are still worth buying even as the market hovers near all-time highs. But today, I’m going to cast a more critical eye and focus on three overvalued stocks that are simply too hot to handle: C3.Ai (NYSE:AI), Jumia (NYSE:JMIA), and Snowflake (NYSE:SNOW).
C3.Ai, which provides artificial intelligence services for enterprise customers, went public in early December at $42 per share. The stock is now trading around $120 a share, which gives it a market cap of about $11.5 billion — or roughly 73 times its fiscal 2020 revenue.
C3.Ai’s AI tools help big companies like Caterpillar optimize their supply chains, streamline maintenance routines, and more. Its revenue rose 88% in 2018, 48% in 2019, and 71% to $157 million in fiscal 2020. But in the first quarter of 2021, its revenue only grew 16% year over year to $40.5 million as the pandemic throttled spending from its top industrial and energy customers.
Like many other high-growth software companies, C3.Ai is unprofitable. Its net losses widened over the past three years, and it ended 2020 with a net loss of $69.4 million. It generated a slim profit in the first quarter of 2021 thanks to lower spending during the pandemic, but it will likely dip back into the red as its business picks up again.
C3.Ai runs a promising business, but it could eventually face competition from integrated AI services in public cloud platforms like Amazon (NASDAQ:AMZN) Web Services (AWS) and Microsoft‘s (NASDAQ:MSFT) Azure.
Analysts haven’t offered any revenue forecasts for C3.ai yet. But even if its revenue rises another 70% this year, it would still be valued at over 40 times forward sales. Simply put, investors should wait for a pullback before buying any shares of this hot AI stock.
Shares of Jumia, the German company that operates e-commerce marketplaces in about a dozen African countries, surged about 450% over the past 12 months and lifted its market cap to about $3.2 billion, or 14 times next year’s sales.
That price-to-sales ratio might seem reasonable for a growing tech stock, but Jumia’s revenue has…
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